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World Economic Situation and Prospects 2012

Report by DESA, UNCTAD, ECA, ECE, ECLAC, ESCAP, ESCWA, 2011

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World Economic Situation and Prospects (WESP) provides an overview of recent global economic performance and short-term prospects for the world economy and of some key global economic policy and development issues. One of its purposes is to serve as a point of reference for discussions on economic, social and related issues taking place in various United Nations entities during the year. The report 2012 is following two years of anaemic and uneven recovery from the global financial crisis, the world economy is teetering on the brink of another major downturn. Output growth has already slowed considerably during 2011, especially in the developed countries. The baseline forecast foresees continued anaemic growth during 2012 and 2013. Such growth is far from sufficient to deal with the continued jobs crises in most developed economies and will drag down income growth in developing countries.

World Economic Situation
and Prospects


2012




United Nations publication
Sales No. E.12.II.C.2


Copyright © United Nations, 2012
All rights reserved


Printed at the United Nations, New York
ISBN 978-92-1-109164-9
eISBN 978-92-1-055103-8




iii Acknowledgements


The present report is a joint product of the United Nations Department of Economic and Social Affairs (UN/DESA), the
United Nations Conference on Trade and Development (UNCTAD) and the five United Nations regional commissions
(Economic Commission for Africa (ECA), Economic Commission for Europe (ECE), Economic Commission for Latin
America and the Caribbean (ECLAC), Economic and Social Commission for Asia and the Pacific (ESCAP) and Economic
and Social Commission for Western Asia (ESCWA)).


For the preparation of the global outlook, inputs were received from the national centres of Project LINK and
from the participants at the annual LINK meeting held in New York from 24 to 26 October 2011. The cooperation and
support received through Project LINK are gratefully acknowledged.


The United Nations World Tourism Organization (UNWTO) contributed to the section on international
tourism.


The report was prepared by a team coordinated by Rob Vos and comprising staff from all collaborating agencies,
including Grigor Agabekian, Abdallah Al Dardari, Clive Altshuler, Lauren Anderson, Nassirou Ba, Shuvojit Banerjee,
Sudip Ranjan Basu, Hassiba Benamara, Alfredo Calcagno, Jeronim Capaldo, Jaromir Cekota, June Chesney, Junior Roy
Davis, Ann D’Lima, Dony El Costa, Adam Elhiraika, Bilge Erten, Pilar Fajarnes, Heiner Flassbeck, Marco Fugazza, Samuel
Gayi, Sergei Gorbunov, Cordelia Gow, Aynul Hasan, Jan Hoffmann, Pingfan Hong, Michel Julian, Alex Izurieta, Cornelia
Kaldewei, Jane Karonga, Matthias Kempf, Leah C. Kennedy, John Kester, Pierre Kohler, Mary Lee Kortes, Nagesh Kumar,
Michael Kunz, Alexandra Laurent, Hung-Yi Li, Muhammad Hussain Malik, Sandra Manuelito, Joerg Mayer, Nicolas
Maystre, Valerian Monteiro, Alessandro Nicita, Victor Ognivtsev, Oliver Paddison, José Palacin, Joanna Panepinto, Ingo
Pitterle, Daniel Platz, Li Qiang, Benu Schneider, Krishnan Sharma, Robert Shelburne, Shari Spiegel, Alexander Trepelkov
and John Winkel.


Jomo Kwame Sundaram, Assistant Secretary-General for Economic Development, provided comments and
guidance.


For further information, see http://www.un.org/en/development/desa/policy/index.shtml or contact:


DESA:
Mr. Sha Zukang, Under-Secretary-General, Department of Economic and Social Affairs, Room DC2-2320,
United Nations, New York, NY 10017, USA; telephone: +1-212-9635958; email: sha@un.org
UNCTAD:
Mr. Supachai Panitchpakdi, Secretary-General, United Nations Conference on Trade and Development,
Room E-9042, Palais de Nations, CH-1211, Geneva 10, Switzerland; telephone +41-22-9175806;
email: sgo@unctad.org
ECA:
Mr. Abdoulie Janneh, Executive Secretary, United Nations Economic Commission for Africa, P.O. Box 3005,
Addis Ababa, Ethiopia; telephone: +251-11-544 3336; email: ecainfo@uneca.org
ECE:
Mr. Ján Kubiš, Executive Secretary, United Nations Economic Commission for Europe, Information Service,
Palais des Nations, CH-1211, Geneva 10, Switzerland; telephone: +41-22-9174444; email: info.ece@unece.org
ECLAC:
Ms. Alicia Bárcena, Executive Secretary, Economic Commission for Latin America and the Caribbean,
Av. Dag Hammarskjold 3477, Vitacura, Santiago, Chile; telephone: +56-2-2102000; email: secepal@cepal.org
ESCAP:
Ms. Noeleen Heyzer, Executive Secretary, Economic and Social Commission for Asia and the Pacific,
United Nations Building, Rajadamnern Nok Avenue, Bangkok 10200, Thailand; telephone: +66-2-2881234;
email: unescap@unescap.org
ESCWA:
Ms. Rima Khalaf, Executive Secretary, Economic and Social Commission for Western Asia, P.O. Box 11-8575,
Riad el-Solh Square, Beirut, Lebanon; telephone: +961-1-978800; website: http://www.escwa.un.org/about/staff.asp






v


Executive Summary
Global economic prospects for 2012 and 2013


The world economy is on the brink of another major downturn


The world economy is teetering on the brink of another major downturn. Output growth
has already slowed considerably during 2011 and anaemic growth is expected during 2012
and 2013.


The problems stalking the global economy are multiple and interconnected.
The most pressing challenges lie in addressing the continued jobs crisis and declining
prospects for economic growth, especially in the developed countries. As unemployment
remains high, at nearly 9 per cent, and incomes stagnate, the recovery is stalling in the
short run owing to the lack of aggregate demand. But, as more and more workers are out
of a job for a long period, especially young workers, medium-term growth prospects will
also suffer because of the detrimental effect on workers’ skills and experience.


The rapidly cooling economy has been both a cause and an effect of the
sovereign debt crisis in the euro area, and of fiscal problems elsewhere. The sovereign
debt crises in a number of European countries worsened further in 2011 and aggravated
weaknesses in the banking sector. Even bold steps by the Governments of the euro area
countries to reach an orderly sovereign debt workout for Greece have been met with con-
tinued financial market turbulence and heightened concerns of debt default in some of
the larger economies in the euro zone, Italy in particular. The fiscal austerity measures
taken in response are further weakening growth and employment prospects, making fiscal
adjustment and the repair of financial sector balance sheets all the more challenging. The
United States economy is also facing persistent high unemployment, shaken consumer
and business confidence, and financial sector fragility. The European Union (EU) and the
United States of America form the two largest economies in the world, and they are deeply
intertwined. Their problems could easily feed into each other and lead to another global
recession. Developing countries, which had rebounded strongly from the global recession
of 2009, would be hit through trade and financial channels.


Faltering growth with heightened risk for a double-dip recession


Premised on a set of relatively optimistic conditions, including the assumptions that the
sovereign debt crisis in Europe will in effect be contained within one or just a few small
economies and that those debt problems can be worked out in more or less orderly fashion,
growth of world gross product (WGP) is forecast to reach 2.6 per  cent in the baseline
outlook for 2012 and 3.2 per cent for 2013.


However, failure of policymakers, especially those in Europe and the United
States, to address the jobs crisis and prevent sovereign debt distress and financial sector
fragility from escalating would send the global economy into another recession. In an al-
ternative downside scenario, growth of WGP would decelerate to 0.5 per  cent in 2012,
implying a decline in average per capita income for the world. More benign outcomes for
employment and sustainable growth worldwide would require much more forceful and in-
ternationally concerted action than that embodied in current policy stances. Global output
growth could be pushed back up to about 4.0 per cent in 2012 and 2013, but with present
policy approaches and stances, such an optimistic scenario will remain a distant reality.




vi World Economic Situation and Prospects 2012


The economic woes in many developed economies
are a major drag on the global economy


The economic woes in many developed economies are a major factor in the global slow-
down. Most developed economies are suffering from predicaments remnant of the global
financial crisis. Growth in the United States slowed notably in 2011. Gross domestic prod-
uct (GDP) growth is expected to weaken further in 2012 and, even under the baseline
assumptions, a mild contraction is possible during part of the year. The country was on the
verge of defaulting on its debt obligations in August of 2011 because of political deadlock.
The uncertain prospects are exacerbating the fragility of the financial sector, causing lend-
ing to businesses and consumers to remain anaemic. Growth in the euro area has slowed
considerably since the beginning of 2011, and the collapse in confidence evidenced by a
wide variety of leading indicators and measures of economic sentiment suggests a further
slowing ahead, perhaps to stagnation by the end of 2011 and into early 2012. Japan fell
into another recession in the first half of 2011, resulting largely, but not exclusively, from
the disasters caused by the March earthquake. While post-quake reconstruction is ex-
pected to lift GDP growth in Japan to above potential, to about 2 per cent per year, in the
coming two years, risks remain on the downside.


Developing countries remain vulnerable
to downturns in the developed economies


Developing countries and economies in transition are expected to continue to stoke the
engine of the world economy, but their growth in 2012-2013 will be well below the pace
achieved in 2010 and 2011. Even though economic ties among developing countries have


Weakening, but uncertain, outlook for the global economy


World gross product (percentage)


Base
line s


cena
rio


Optimistic scenario


Pessim
istic scenario


4.1 4.0


1.5


4.0


2.8
2.6


3.9
3.2


4.0


0.5


2.2


-2.4
-3


-2


-1


0


1


2


3


4


5


2006 2007 2008 2009 2010 2011a 2012b 2013b


Sources: UN/DESA and
Project LINK.


Note: See box I.1 for
assumptions underlying the


baseline forecasts and section
on “Risks and uncertainties”


for assumptions for the
pessimistic scenario.


a Estimates.
b United Nations forecasts.




viiExecutive Summary


strengthened, these countries remain vulnerable to economic conditions in the developed
economies. From the second quarter of 2011, economic growth in most developing coun-
tries and economies in transition started to slow notably. Among the major developing
countries, growth in China and India is expected to remain robust: growth in China is
projected to slow to below 9 per cent in 2012-2013, while India is expected to grow by
between 7.7 and 7.9 per cent. Brazil and Mexico are expected to suffer a more visible eco-
nomic slowdown. Low-income countries have also seen a slowdown, albeit a mild one. In
per capita terms, income growth slowed from 3.8 per cent in 2010 to 3.5 per cent in 2011,
but despite the global slowdown, the poorer countries may see average income growth at
or slightly above this rate in 2012 and 2013. The same holds for average growth among
the United Nations category of the least developed countries (LDCs). Even so, growth is
expected to remain below potential in most of these economies.


The global jobs crisis
High unemployment is a major stumbling block on the path to recovery


Persistent high unemployment remains the Achilles heel of economic recovery in most
developed countries. The unemployment rate averaged 8.6 per cent in developed countries
in 2011, still well above the pre-crisis level of 5.8 per cent registered in 2007. In many
developed economies, the actual situation is worse than reflected in official unemploy-
ment rates. In the United States, for instance, labour participation rates have been on a
steady decline since the start of the crisis. Increasing numbers of workers without a job
for a prolonged period have stopped looking for one and are no longer counted as part
of the labour force. About 29 per cent of the unemployed in the United States have been


Developing economies continue to stoke the engine of the global economy


-8.0


-6.0


-4.0


-2.0


0.0


2.0


4.0


6.0


8.0


10.0


2006 2007 2008 2009 2010 2011a 2012b 2013b


Developed economies
Economies in transition


Developing economies
Least developed countries


GDP growth rates (percentage)


Sources: UN/DESA and
Project LINK.
a Estimates.
b United Nations forecasts.




viii World Economic Situation and Prospects 2012


without a job for more than one year, up from 10 per  cent in 2007. Such a prolonged
duration of unemployment tends to have significant long-lasting, detrimental impacts on
both the individuals who have lost their jobs and on the economy in general. The skills
of unemployed workers deteriorate commensurate with the duration of their unemploy-
ment, most likely leading to lower earnings for those individuals who are able to find new
jobs in the future. At the aggregate level, the higher the proportion of workers entrapped
in protracted unemployment, the greater the adverse impact on the productivity of the
economy in the medium to long run.


Employment recovery in developing countries has been much stronger


In developing countries, the employment recovery has been much stronger than in devel-
oped economies. For instance, unemployment rates are back to or below pre-crisis levels
in most Asian developing countries, while employment has recovered in most countries
in Latin America also. However, developing countries continue to face major challenges
owing to the high shares of workers that are underemployed, poorly paid, have vulnerable
job conditions and lack access to any form of social security. At the same time, open un-
employment rates remain high, at well over 10 per cent in urban areas, with the situation
being particularly acute in a number of African and Western Asian countries. Long-term
unemployment has also increased in developing countries.


High youth unemployment is a concern worldwide


Unemployment rates among youth (persons 15-24 years of age) tend to be higher than
other cohorts of the labour force in normal times in most economies, but the global fi-
nancial crisis and its subsequent global recession have increased this gap disproportionally.
Barring data limitations, the jobless rate among young workers increased from an estimated
13 per cent in 2007 to about 18 per cent by the first quarter of 2011. The situation remains


Long-term unemployment disencourages job searching in the United States


63.5


64.0


64.5


65.0


65.5


66.0


66.5


Ja
n-


20
06


Ju
l-2


00
6


Ja
n-


20
07


Ju
l-2


00
7


Ja
n-


20
08


Ju
l-2


00
8


Ja
n-


20
09


Ju
l-2


00
9


Ja
n-


20
10


Ju
l-2


01
0


Ja
n-


20
11


Ju
l-2


01
1


Pa
rt


ic
ip


at
io


n
ra


te


0


5


10


15


20


25


30


M
ed


ia
n


nu
m


be
r


of
w


ee
ks


o
f u


ne
m


pl
oy


m
en


t


Participation rate


Median number of weeks
of unemployment


Source: UN/DESA, based on
data from the United States


Bureau of Labor Statistics.




ixExecutive Summary


particularly acute in some developed economies. In Spain, an astonishing 40 per cent of
young workers are without a job. A quarter or more of the youth in Western Asia and
North Africa and one fifth of those in the economies in transition are unemployed. In
other developing regions, too, youth unemployment has increased more than that of other
age groups. Latin America and the Caribbean, in particular, have experienced significant
increases in youth unemployment since 2008, although the situation started to improve
in the first half of 2011. In South and East Asia and Africa, young workers have a high
probability of facing vulnerable employment conditions.


A global employment deficit of 64 million jobs needs to be eliminated


In order to restore pre-crisis employment and absorb the new labour entrants, an employ-
ment deficit, estimated at 64 million jobs in 2011, would need to be eliminated. With
the global economic slowdown projected in the baseline and growth of the workforce
worldwide, however, this deficit would increase further, leaving a job shortage of about 71
million, about 17 million of which would be in developed countries. If economic growth
stays as anaemic in developed countries as projected in the baseline forecast, employment
rates will not return to pre-crisis levels until well beyond 2015.


Persistent high unemployment is holding back wage growth and consumer de-
mand globally and pushing up delinquency on mortgage payments in the United States.
Combined with continued financial fragility in the developed economies, it is also depressing
investment demand and business confidence and holding back economic recovery further.


Inflation outlook
Inflation has increased worldwide during 2011, driven by a number of factors, particularly
the adverse supply-side shocks that have pushed up food and oil prices and strong demand
in large developing economies as a result of rising incomes. Reflationary monetary policies
in major developed economies have also contributed to upward pressure.


Inflation should not be a major policy concern in developed economies…


Among developed economies, inflation rates in the United States and Europe edged up
during 2011, moving from the lower to the upper bound of the inflation target bands set
by central banks. This increase was in line with the policy objective in these economies to
mitigate the risk of deflation in the aftermath of the financial crisis as their central banks
continued to inject more liquidity into the economy through various unconventional
policy measures. Nonetheless, inflation should not be a major policy concern for most
developed economies. Inflation is expected to be moderate in the outlook for 2012-2013
with the weakening of aggregate demand, subdued wage pressures in the face of continued
high unemployment and—barring major supply shocks—the moderating of international
commodity prices.


…but is a bigger concern in a number of developing countries


Inflation rates surpassed policy targets by a wide margin in a good number of developing
economies. The monetary authorities of these economies have responded with a variety of
measures, including by tightening monetary policy, increasing subsidies on food and oil,




x World Economic Situation and Prospects 2012


and providing incentives to domestic production. In the outlook, along with an antici-
pated moderation in global commodity prices and lower global growth, inflation in most
developing countries is also expected to decelerate in 2012-2013.


International trade and commodity prices
The recovery of world trade is decelerating


The recovery of world trade slowed down in 2011 as growth in merchandise trade declined
to 6.6 per cent, from 12.6 per cent in 2010. In the baseline outlook, world trade growth
will continue at a slower pace of 4.4 and 5.7  per  cent in 2012 and 2013, respectively.
Feeble global economic growth, especially among developed economies, is the major factor
behind the deceleration.


Developing countries were more resilient to the crisis and their importance
in world trade continues to increase. Between 1995 and 2010, their share in world trade
volume increased from 28.5 to 41.2 per cent. In 2011, they led the recovery of external
demand by contributing to half of world import growth, compared with 43 per cent on
average in the three years prior to the crisis. The shifting patterns of trade are associated
with the rapid industrial growth in major developing countries. Between 1995 and 2011,
South-South trade increased at an annual rate of 13.7  per  cent—well above the world
average of 8.7 per cent.


Commodity prices have increased, but remain highly volatile


For many commodities, the rising trend in prices that started in June 2010 extended into
2011. After peaking during the first half of the year, prices declined slightly. However,
in the case of oil, metals, agricultural raw materials and tropical beverages, average price
levels for the year 2011 as a whole surpassed the record averages reached in 2008. In the
outlook, commodity exporters that have benefited from improved terms of trade over the
last two years remain exposed to downward price pressures, which may be significantly
amplified by financial speculation in the event of a double-dip recession. Although finan-
cial speculation has been on the agenda of several international forums in 2011, including
the Group of Twenty (G20), no decisions have thus far been taken at the international
level to better regulate commodity futures markets.


Trade in services is mirroring developments in merchandise trade


In 2010, services trade returned to positive growth in all regions and groups of countries,
especially developing countries, particularly the least developed among them. As trade
in services has shown less sensitivity to the financial crisis compared with trade in mer-
chandise, its rebound was also less pronounced in 2010 and 2011. Developing countries
remain net services importers, but their role as service exporters is continuously growing,
especially in the transport and tourism sectors.


Trade policy prospects are uncertain


In the context of stalled multilateral trade negotiations in the Doha Round, bilateral
trade agreements among (sometimes unequal) partners are proliferating and the notion
of a “variable geometry” approach in World Trade Organization (WTO) negotiations




xiExecutive Summary


is finding some support among member States. These developments also put at risk the
unconditional most favoured nation (MFN) clause, which has been the cornerstone of the
multilateral trading system since its inception at the end of the 1940s.


International financing for development
Fragilities in the international financial markets
are affecting financing for development


Existing fragilities in the international financial system are affecting the financing avail-
able for development. The uneven global recovery, the risk of European sovereign debt
crises and a growing liquidity squeeze in the European interbank market have heightened
risk aversion and led to increased volatility in private capital flows. At the same time,
official development assistance (ODA) and other forms of official flows have been affected
by greater fiscal austerity and sovereign debt problems in developed countries. Not unlike
private flows, aid delivery has been pro-cyclical and volatile.


Managing the macroeconomic volatility induced by financial flows presents a
challenge for emerging market and developing country policymakers. Waves of capital in-
flows that are in excess of an economy’s absorptive capacity, or highly speculative in nature,
may lead to exchange-rate overshooting, inflation, credit booms and asset price bubbles.
More importantly, volatile capital flows carry risks for financial and economic stability, with
the threat of sudden stops and withdrawals of international capital owing to heightened risk
aversion potentially contributing to the spreading financial crises. Policymakers in many
countries have responded to these boom and bust cycles by building international reserves as
a form of “self-insurance”. During 2011, developing countries added another estimated $1.1
trillion to their reserves, now totalling well over $7 trillion. However, the vast majority of


Private financial flows to emerging and developing economies:
volatile over the Great Recession


500


400


300


200


100


0


-100


-200


2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011


Direct investment, net


Other private nancial ows, net


Private portfolio ows, net


Billions of dollars


Source: International
Monetary Fund, World
Economic Outlook,
September 2011.




xii World Economic Situation and Prospects 2012


reserves are invested in United States Treasuries and other low-yielding sovereign paper, thus
contributing to increasing global imbalances. The building of reserves in developing coun-
tries has the effect of transferring financial resources from the developing to the developed
world. Developing countries, as a group, are expected to provide a net transfer of financial
resources of approximately $826.6 billion to developed countries in 2011. Furthermore,
opportunity costs associated with building reserves exist in the form of forgone domestic
investment in development.


Financial reforms are inadequate for containing systemic risks


The international community has also taken steps to reduce global risks and strengthen
the international financial system through the introduction of new financial regulations,
including the internationally agreed framework known as Basel III. The Dodd-Frank Wall
Street Reform and Consumer Protection Act was also signed into law in the United States,
among measures taken at the national level. Discussions on regulations for systemically
important institutions are still ongoing. However, since most of these measures are being
phased in over a long period of time, they have not had an impact on the current economic
and financial situation. Furthermore, whether many of these measures suffice to contain
risk remains uncertain.


Aid flows fall short of commitments


Important issues also remain regarding the sufficiency and composition of both aid and
international liquidity support. Global aid delivery fell short of amounts pledged for 2010
at the Group of Eight (G8) 2005 Gleneagles Summit. On the positive side, grants and the
grant element of concessional loans have increased over time, especially in aid directed
towards LDCs.


Emerging and developing economies continue to increase reserves as self-insurance


Change in reserves (billions of dollars)
1,400


1,200


1,000


800


600


400


200


0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011


Source: International
Monetary Fund, World


Economic Outlook,
September 2011.




xiiiExecutive Summary


Uncertainties and risks


Developed economies suffer from four weaknesses
that mutually reinforce each other


Failure of policymakers, especially in Europe and the United States, to address the jobs
crisis and prevent sovereign debt distress and financial sector fragility from escalating
poses the most acute risk for the global economy in the outlook for 2012-2013, with a
renewed global recession being a distinct possibility.


The developed economies are on the brink of a downward spiral driven by
four weaknesses that mutually reinforce each other: sovereign debt distress, fragile bank-
ing sectors, weak aggregate demand (associated with high unemployment) and policy
paralysis caused by political gridlock and institutional deficiencies. These weaknesses are
already present, but a further worsening of one of them could set off a vicious circle leading
to severe financial turmoil and an economic downturn. This would also seriously affect
emerging markets and other developing countries through trade and financial channels.


Contagion of the sovereign debt crisis
could trigger a worldwide credit crunch


It is quite possible that the recent additional measures planned in Europe will not be
effective enough to resolve the sovereign debt crisis in the region, thereby leading to a
disorderly and contagious default in a number of countries which will wreak havoc in
the economies in the region and beyond. The efforts to solve the sovereign debt crisis in
Europe failed to quell the unease in financial markets during November 2011, and fresh
warning signs of further problems emerged as Italy’s cost of borrowing jumped to its
highest rate since the country adopted the euro. A large number of banks in the euro area
already stand to suffer significant losses. Contagion of the sovereign debt crisis to large
economies would no doubt trigger a worldwide credit crunch and financial market crash
in a scenario reminiscent of the September 2008 collapse of Lehman Brothers Holdings
Inc. Such a financial meltdown would no doubt lead to a deep recession, not only in those
economies under sovereign debt distress, but also in all other major economies in the euro
area, possibly with the intensity of the downturn witnessed in late 2008 and early 2009.


More severe fiscal austerity would push
the United States economy into recession


The political wrangling over the budget in the United States may also worsen and could
harm economic growth if it leads to severe fiscal austerity with immediate effect. This
would push up unemployment to new highs, further depress the already much-shaken
confidence among households and businesses, and exacerbate the beleaguered housing
sector, leading to more foreclosures, which, in turn, would put the United States banking
sector at risk again. Consequently, the United States economy may well fall into another
recession. The United States Federal Reserve (Fed) might respond by adopting more ag-
gressive monetary measures, for example, through another round of quantitative easing;
but in a depressed economy with highly risk-averse agents, this would likely be even less
effective in terms of boosting economic growth than the measures taken in previous years.




xiv World Economic Situation and Prospects 2012


Developing economies would take a significant blow


A recession in either Europe or the United States might not be enough to induce a global
recession, but a collapse of both economies most likely would. In the pessimistic sce-
nario of the United Nations forecast for 2012, the economy of the EU would decline
by 1.5  per  cent and that of the United States by 0.8  per  cent. Developing economies
and the economies in transition would likely take a significant blow. The impact would
vary as their economic and financial linkages to major developed economies differ across
countries. Asian developing countries, particularly those in East Asia, would suffer mainly
through a drop in their exports to major developed economies, while those in Africa, Latin
America and Western Asia, along with the major economies in transition, would be af-
fected by declining primary commodity prices. In addition, all emerging economies would
have to cope with large financial shocks, including a contagious sell-off in their equity
markets, reversal of capital inflows and direct financial losses because of the declining
values of the holdings of European and United States sovereign bonds, which would affect
both official reserve holdings and private sector assets.


Global imbalances remain a policy concern


The large and persistent external imbalances in the global economy that have developed
over the past decade remain a point of concern to policymakers. Reducing these im-
balances has been a major focus of consultations among G20 Finance Ministers under
the Framework for Strong, Sustainable and Balanced Growth and the related Mutual
Assessment Process (MAP) during 2011.


In practice, after a substantial narrowing during the Great Recession, the ex-
ternal imbalances of the major economies stabilized at about half of their pre-crisis peak


Downside risks: a looming recession in developed economies


-4 -2 0 2 4 6 8 10


2012 Pessimistic scenario
2012 Baseline scenario


Mexico


Brazil


India


China


South Africa


Nigeria


Developing countries


Russian Federation


Economies in transition


European Union


Japan


United States


Developed economies


World


GDP growth rates (percentage)


Source: UN/DESA (see chap. I,
tables I.1 and I.2, of the


present report).




xvExecutive Summary


levels (relative to GDP) during the period 2010-2011. The United States remained the larg-
est deficit economy, although its deficit has fallen substantially from the peak registered
in 2006. The external surpluses in China, Germany, Japan and a group of fuel-exporting
countries, which form the counterpart to the United States deficit, have narrowed, albeit to
varying degrees. While Germany’s surplus remained at about 5 per cent of GDP in 2011,
the current account for the euro area as a whole was virtually in balance. Large surpluses,
relative to GDP, were still found in oil-exporting countries, reaching 20 per cent of GDP
or more in some of the oil-exporting countries in Western Asia.


Global rebalancing is taking place at the expense of growth


At issue is whether the adjustment of the imbalances in major economies has been mainly
cyclical or structural. In the United States, some of the corresponding adjustment in the
domestic saving-investment gap seems to be structural—for example, the increase in the
household saving rate may be lasting; however, the decline in the business investment rate
and surge in the Government deficit in the aftermath of the financial crisis are more likely
to be cyclical. In the surplus countries, the decline in the external surplus of China has also
been driven in part by structural change. China’s exchange-rate policy has become more
flexible, with the renminbi appreciating gradually but steadily vis-à-vis the United States
dollar over the past year. Meanwhile, the Government has scaled up measures to boost
household consumption, aligning the goal of reducing China’s external surplus with that
of rebalancing the structure of the economy towards greater reliance on domestic demand.
The process of rebalancing can, however, be only gradual over the medium to long run so
as to prevent it from being disruptive. In Japan, a continued appreciation of the yen has
contained its external surplus. In Germany, room remains for policies to stimulate more
domestic demand so as to further narrow its external surplus.


Unsustainably large imbalances must be addressed, but at their present levels,
the global imbalances should not be a primary reason for concern. However, the global
rebalancing agenda should not develop at the expense of growth; rather, it should promote
growth and employment generation. The commitments made at the G20 Cannes Summit
promise to gently move policies in the same direction, but much of the narrowing in the
short run will come from cyclical factors, including slower aggregate demand growth and
moderating commodity prices. Hence, at projected baseline trends, the global imbalances
are not expected to widen by any significant margin over the next two years. Should the
global economy fall into another recession, the imbalances would narrow further in a
deflationary manner.


The imbalances are a risk to global exchange-rate stability


The continued build-up of vast net external liability positions of deficit countries are
part of a larger topic related to enhanced exchange-rate instability. Mounting external
liabilities by the United States, associated in part with increasing fiscal deficits, have in fact
been a major factor in the downward pressure on the United States dollar against other
major currencies since 2002, although there have been large fluctuations around the trend.
Confidence in the dollar is subject to volatility, as perceptions of the sustainability of the
United States liability position may easily shift with changes in equity prices in global
markets and the credibility of fiscal policy.


In the light of events and problems with policy credibility elsewhere, this did
not lead to univocal dollar depreciation. In the euro area, the lack of policy direction and




xvi World Economic Situation and Prospects 2012


coherence in dealing with sovereign debt problems put downward pressure on the euro.
On a slightly different tack, but essentially in the same vein, the United Kingdom suffered
its own version of a credibility crisis with the continued failure of its central bank to
achieve its inflation target. Japan’s earthquake, in turn, triggered a repatriation of private
asset holdings for investment in reconstruction works, putting upward pressure on the
yen. Global capital flow volatility induced further instability in currency markets.


Currency appreciation poses a challenge for many developing countries and
some European countries by reducing the competitiveness of their respective export sec-
tors. While domestic demand has been taking on a more significant role as a driver of
growth on the back of rising incomes in many of the emerging economies, a forced and
premature shift away from an export-led growth model owing to pronounced and sus-
tained currency appreciation might create significant dislocations, especially in labour
markets in the form of a spike in unemployment. Stronger currencies help on the import
side to reduce inflation, but this advantage could be more than offset by the social cost of
higher unemployment rates.


Policy challenges
Developed countries face difficult policy dilemmas


Overcoming the risks outlined above and reinvigorating the global recovery in a balanced
and sustainable manner pose enormous policy challenges. The United States and Europe
face the risk of their problems feeding into each other. Recent economic stagnation may
make voters and policymakers unwilling to opt for hard choices, and the political paralysis
might, in turn, worsen the economy by creating new financial turmoil. In the short term,
this so-called no growth or low growth trap takes the form of resistance to emergency
measures—for instance, the opposition in some European countries perceived to be more
fiscally prudent to bail out what are seen to be more profligate countries; this may force the
latter towards more fiscal austerity and induce lower growth and social opposition. Over
the longer term, the trap is created by resistance to the higher taxes and reduced benefits
believed to be necessary to return countries to financial stability.


Developing countries find themselves in a different bind


Developing countries face different dilemmas. On the one hand, they need to protect
themselves against volatile commodity prices and external financing conditions, in some
cases through more restrictive macroeconomic policies. On the other hand, they need to
step up investment to sustain higher growth and reorient their economies towards faster
poverty reduction and more sustainable production.


Current policy intentions of the G20 at best
provide for a scenario of “muddling through”


G20 leaders recognized these concerns to some extent in the Cannes Action Plan and
announced a global strategy for growth and jobs. The plan is to address short-term vul-
nerabilities, while strengthening the medium-term foundations for growth. In essence,
however, the Cannes Action Plan does not promise to do much more in the short run than
that contained in Government plans enacted during 2011, when macroeconomic policies




xviiExecutive Summary


in most developed economies were already characterized by a combination of an extremely
loose monetary policy stance and shifts towards fiscal austerity. As the baseline projections
show, the Cannes Action Plan would fall short of reinvigorating the world economy and
bringing down unemployment. Most hopes seem to be set on strengthening the medium-
term foundations for growth, but in this sense, too, the Cannes Action Plan may already
have “fallen behind the curve”, as the downside risks have heightened, complicating the
effectiveness of the proposed actions.


In order to make the global economic recovery more robust, balanced and
sustainable, much more pervasive and better coordinated policy action is needed, espe-
cially in terms of short-term stimulus, sovereign debt resolution and orientation towards
jobs creation; medium-term plans should focus more strongly on sustainable growth and
development and accelerated reforms of financial regulatory systems and the international
monetary system.


More short-term fiscal stimulus is needed, not less


First, developed countries, in particular, should be cautious not to embark prematurely
on fiscal austerity policies given the still fragile state of the recovery and prevailing high
levels of unemployment. While high public indebtedness is a concern and has continued
to increase in most developed economies—in a number of cases (including the United
States) to over 100 per cent of GDP—many developed country Governments still have
plenty of fiscal space left for additional stimulus measures. With high unemployment
and weak private demand, a premature fiscal tightening may derail the fragile recovery
and lead to further worsening, rather than improvement, of fiscal balances. Instead, and
contrary to political pressures, the Governments of economies with low financing costs
in capital markets should allow automatic stabilizers to operate and sustain or enhance
deficit-financed fiscal stimulus in the short run.


Further strengthening of financial safety nets will also be needed to stem
market uncertainty and the risk of further debt distress. The establishment of Europe’s
temporary funding facilities (the European Financial Stability Facility (EFSF) and the
European Financial Stabilisation Mechanism (EFSM)), the more permanent European
Stability Mechanism (ESM) and related measures have brought some resolve to dealing
with Europe’s sovereign debt crisis. However, the continued debt distress and spread of
contagion to the larger European economies during the second half of 2011 suggest these
measures have not been bold enough. The firepower of the financial safety nets is too limited
to cope with the sovereign debt problems of countries like Italy and Spain. While finding
ways to significantly enhance the firepower of the ESM will be as important as it is difficult
to achieve, debt workout mechanisms should not be restricted to sovereign debts in Europe.
Many developed countries, the United States in particular, may face a second round of
mortgage crises, as so many mortgages are “under water” and problems are likely to increase
with persistent high unemployment and the general weakness in housing markets.


Meanwhile, the short-term policy concern for many developing countries will
be to prevent rising and volatile food and commodity prices and exchange-rate instability
from undermining growth and leading their economies into another boom-bust cycle.
These countries would need to ensure that macroeconomic policies are part of a transpar-
ent counter-cyclical framework that would include the use of fiscal stabilization funds
and strengthened macroprudential financial and capital-account regulation to mitigate
the impact of volatile commodity prices and capital inflows.




xviii World Economic Situation and Prospects 2012


The stimulus needs to be adequately coordinated internationally


The second (and related) challenge is to ensure that additional short-term stimulus by
economies with adequate fiscal space is coordinated and consistent with benign global
rebalancing. In Europe, instead of the present asymmetric adjustment through recession-
ary deflation—where most of the pain is concentrated on the countries in debt distress—it
would entail a more symmetrical approach of austerity and structural reforms in the coun-
tries in distress combined with euro area-wide reflation. The United States would equally
need to consider such a sequenced approach. The first priority should be to boost demand
in order to reduce unemployment, especially through public investment and more direct
job creation. This would help households delever and boost consumption demand through
income growth. Infrastructure investment and other structural measures would underpin
strengthened export competitiveness over the medium run, giving time for China and
other Asian economies to rebalance towards greater reliance on domestic demand growth.


To achieve such benign global rebalancing with accelerated jobs recovery seems
feasible. Simulations with the United Nations Global Policy Model—reflecting the key
policy directions suggested above and those below regarding coordinated short-term global
stimulus, orderly sovereign debt workouts and structural policies aimed at stronger job
creation and sustainable development—show that this would be a win-win scenario for all
economies, as it would significantly enhance GDP and employment growth compared with
the baseline, while reducing public debt-to-GDP ratios and requiring limited exchange-rate
realignment. Global output growth would accelerate to over 4 per cent per year during the
period 2012-2015, especially since developed economies would be lifted from their anaemic
growth, while developing countries would also reach a higher growth path compared with
the baseline situation, where policy coordination is absent. Most importantly, employment
rates, especially among developed countries, would recover to near pre-crisis levels and, by
and large, undo the deficit of 64 million jobs left by the global crisis of 2008-2009.


Redesigning macroeconomic policies for
job growth and sustainable development


The third challenge will be to redesign fiscal policy—and economic policies more broadly—in
order to strengthen its impact on employment and aid in its transition from purely a demand
stimulus to one that promotes structural change for more sustainable economic growth. Thus
far, stimulus packages in developed countries have mostly focused on income support meas-
ures, with tax-related measures accounting for more than half of the stimulus provided. In
many developing countries, such as Argentina, China and the Republic of Korea, in contrast,
infrastructure investment tended to make up the larger share of the stimulus and strength-
ened supply-side conditions. The optimal mix of supporting demand directly through taxes
or income subsidies or indirectly through strengthening supply-side conditions, including
by investing in infrastructure and new technologies, may vary across countries, but in most
contexts, direct Government spending tends to generate stronger employment effects.


Addressing international financial market,
commodity price and exchange-rate volatility


The fourth challenge is to find greater synergy between fiscal and monetary stimulus, while
counteracting damaging international spillover effects in the form of increased exchange-
rate tensions and volatile short-term capital flows. This will require reaching agreement at




xixExecutive Summary


the international level on the magnitude, speed and timing of quantitative easing policies
within a broader framework of targets to redress the global imbalances. This, in turn, will
require stronger bilateral and multilateral surveillance, including through more thorough
assessment of spillover effects and systemic risks.


In addition, such cooperative policy solutions should comprise deeper reforms
of (international) financial regulation, including those for addressing risks outside the
traditional banking system. These would need to be complemented by deeper reforms of
the global reserve system that would reduce dependence on the dollar as the major reserve
currency, including through better international pooling of reserves. The sovereign debt
crisis in Europe has emphasized the need for much stronger internationally coordinated
financial safety nets. This could be achieved through reinforcing International Monetary
Fund (IMF) resources and closer cooperation between the IMF and regional mechanisms
of financial cooperation (not just in Europe, but also those in Asia, Africa and Latin
America), as well as through enhancing the role of Special Drawing Rights (SDRs) as
international liquidity.


More development financing is needed to support the achievement of
sustainable development goals


The fifth challenge is to ensure that sufficient resources are made available to developing
countries, especially those possessing limited fiscal space and facing large development
needs. These resources will be needed to accelerate progress towards the achievement of
the Millennium Development Goals (MDGs) and for investments in sustainable and resil-
ient growth, especially for the LDCs. Apart from delivering on existing aid commitments,
donor countries should consider mechanisms to delink aid flows from their business cycles
so as to prevent delivery shortfalls in times of crisis, when the need for development aid is
at its most urgent.






xxi


Contents


Executive Summary ..................................................................................................................................................................................... v


Contents .............................................................................................................................................................................................................. xxi


Explanatory Notes ......................................................................................................................................................................................... xxv


I Global economic outlook ............................................................................................................................... 1


Prospects for the world economy in 2012-2013 ........................................................................................................................ 1
Faltering growth ........................................................................................................................................................................ 2
Unemployment—a key policy concern .................................................................................................................... 9
Benign inflation outlook ...................................................................................................................................................... 11


The international economic environment for
developing countries and the economies in transition ..................................................................................................... 13


Increased volatility in private capital flows ............................................................................................................... 13
Continued volatility in commodity prices ................................................................................................................ 15
Moderating world trade growth ..................................................................................................................................... 16


Uncertainties and risks ............................................................................................................................................................................... 17
Risks of another global recession ................................................................................................................................... 17
Uncertainties associated with the global imbalances
and heightened exchange-rate volatility ............................................................................................................... 19


Policy challenges ........................................................................................................................................................................................... 25
Stronger macroeconomic stimulus… ....................................................................................................................... 27
…that is adequately coordinated internationally ................................................................................................ 32
Redesigning macroeconomic policies for jobs growth and sustainable development .............. 36
Addressing international financial market, commodity price and exchange-rate volatility ..... 37
Adequate development financing ................................................................................................................................ 38


Appendix ............................................................................................................................................................................................................ 39


II International trade .......................................................................................................................................... 41


Slowing merchandise trade .................................................................................................................................................................... 41
Shifting patterns of merchandise trade........................................................................................................................................... 42
Volatile terms of trade ................................................................................................................................................................................ 47
Unstable commodity markets ............................................................................................................................................................... 50


Food and agricultural commodities ............................................................................................................................. 51
Minerals, ores and metals .................................................................................................................................................... 53
The oil market ............................................................................................................................................................................. 54


Growing trade in services ......................................................................................................................................................................... 57
Growing trade in transport services ............................................................................................................................. 60


Trade policy developments .................................................................................................................................................................... 62
The Doha Round ....................................................................................................................................................................... 62
The continued threat of protectionism ...................................................................................................................... 63


Appendix ............................................................................................................................................................................................................ 65




xxii World Economic Situation and Prospects 2012


III International finance for development ........................................................................................................ 67


Private capital flows and macroeconomic imbalances ......................................................................................................... 67
Trends in private capital flows .......................................................................................................................................... 68


International reserves and the problem of the global imbalances ................................................................................ 73
Net financial transfers ................................................................................................................................................................................. 74
Capital-account management .............................................................................................................................................................. 76
International financial reform ................................................................................................................................................................ 80


Progress in reforming international financial regulation ................................................................................. 81
Global liquidity mechanisms: current debates and the need for further reform .................................................. 84
International development cooperation and official flows ................................................................................................ 86


Official development assistance ..................................................................................................................................... 86
South-South cooperation ................................................................................................................................................... 89
Innovative sources of finance ........................................................................................................................................... 90
Developing country debt relief ....................................................................................................................................... 91


IV Regional developments and outlook ........................................................................................................... 95


Developed market economies: recovery weakens with ominous overtones ......................................................... 95
North America ................................................................................................................................................................................................. 95


United States of America: growth decelerating and dangers from fiscal impasse ......................... 95
Canada: facing increasing headwinds ......................................................................................................................... 98


Developed Asia and the Pacific ............................................................................................................................................................ 99
Japan: earthquake recovery, but one threatened by slowing global demand ................................. 99
Australia: recovering from record flooding .............................................................................................................. 100
New Zealand: earthquake reconstruction boosts growth ............................................................................. 100


Europe .................................................................................................................................................................................................................. 101
Western Europe: sharply slowing growth as the debt crisis grips the region .................................... 101
The new EU members: dangers from a weakening in the rest of the EU ............................................. 104


Economies in transition ............................................................................................................................................................................. 107
South-Eastern Europe: an already slow recovery threatened by euro area troubles ..................... 107
The Commonwealth of Independent States: recovery continues, but risks increase ................... 109


Developing economies ............................................................................................................................................................................. 112
Africa: growth remains on a high, but uneven and uncertain path ......................................................... 113
East Asia: growth drivers lose momentum ............................................................................................................... 117
South Asia: robust domestic demand drives growth ........................................................................................ 120
Western Asia: growth trajectories shaken by political unrest ....................................................................... 122
Latin America and the Caribbean: robust but uneven recovery ................................................................ 125


Statistical annex


Country classification .................................................................................................................................................................................. 131
Annex tables ..................................................................................................................................................................................................... 141




xxiiiContents


Boxes


I. 1 Key assumptions for the United Nations baseline forecast for 2012 and 2013 ...................................................... 3
I. 2 Prospects for the least developed countries ................................................................................................................................ 8
I. 3 A “J-curved” fiscal adjustment? .............................................................................................................................................................. 30
I. 4 A coordinated strategy for jobs and growth ................................................................................................................................ 33
II. 1 Maritime transportation underpinning the growing role of the South in world trade..................................... 44
II. 2 Commodity market volatility and financialization reaches the international policy agenda ........................ 52
II. 3 International tourism .................................................................................................................................................................................. 59


IV. 1 The impact of the appreciation of the Swiss franc on the economies of Eastern Europe .............................. 106
IV. 2 Drought in the Horn of Africa takes a heavy human and economic toll ................................................................... 114


Figures


I. 1 Growth of world gross product, 2006-2013.................................................................................................................................. 5
I. 2 Growth of GDP per capita, by level of development, 2000-2013 .................................................................................... 7
I. 3 Long-term unemployment in developed and developing countries, 2009 and 2011 ..................................... 10
I. 4 Post-recession employment recovery in the United States, euro area and


developed economies, 2007 (Q1)-2011 (Q2) and projections for 2011 (Q3)-2015 (Q4) ................................. 12
I. 5 Net capital flows to developing countries, 2000-2012 .......................................................................................................... 13
I. 6 Daily yield spreads on emerging market bonds, January 2010-October 2011 ...................................................... 14
I. 7 International oil and food prices, January 2000-October 2011 ........................................................................................ 16
I. 8 World merchandise exports, by volume, January 2006-August 2011 .......................................................................... 17
I. 9 Global imbalances, 1996-2013 .............................................................................................................................................................. 21
I.10 Exchange rates of major reserve currencies vis-à-vis the


United States dollar, 2 January 2008-10 November 2011 .................................................................................................. 23
I.11 Exchange rates of selected currencies vis-à-vis the


United States dollar, 2 January 2008-10 November 2011 .................................................................................................... 24
I.12 Growing public debt burdens ............................................................................................................................................................... 28
I.13 Yields on two-year sovereign bonds in developed countries,


January 2010-November 2011 ........................................................................................................................................................... 29
II. 1 Below-trend growth of world merchandise trade, 2002-2013 ......................................................................................... 41
II. 2 Diverging trends in world import growth, 2002-2013 ........................................................................................................... 42
II. 3 Gains and losses in world market shares of merchandise trade ...................................................................................... 43
II. 4 Developed (North) and developing (South) economies,


bilateral shares in world exports, 1995 and 2010 .................................................................................................................... 44
II. 5 Shifting total trade market shares in Asia, 2002-2010 ............................................................................................................ 47
II. 6 Barter terms of trade of selected groups of countries, by export structure, 2000-2013 ................................... 48
II. 7 Trade shocks by region and export specialization, 2001-2013 ......................................................................................... 49
II. 8 Total non-oil commodity price index, 2000-2011 ..................................................................................................................... 50
II. 9 Price indices of commodity groups, January 2000- September 2011 ......................................................................... 53




xxiv World Economic Situation and Prospects 2012


II.10 Price indices of non-ferrous metals, January 2007-September 2011 ............................................................................ 54
II.11 Oil prices ............................................................................................................................................................................................................. 56
II.12 International trade in services ............................................................................................................................................................... 58
III. 1A Net transfers of financial resources to developing economies


and economies in transition, 1999-2011 ...................................................................................................................................... 75
III. 1B Net financial transfers, by income category, 2001-2011 ....................................................................................................... 75
III. 2 European bank wholesale term funding, debt securities


issued by bank sector borrowers, January-October 2011 ................................................................................................. 80
III. 3 ODA growth rate per annum, 2000-2013 ...................................................................................................................................... 87
III. 4 EU-15 ODA growth rate per annum, 2009-2010 ........................................................................................................................ 88
III. 5 External debt service-to-exports ratio, 2005-2010 ................................................................................................................... 91
IV. 1 Unemployment rate and hourly earnings in the United States, January 1990-October 2011 ..................... 96
IV. 2 Index for Japanese export volume, January 2009-September 2011 ............................................................................. 99
IV. 3 GDP, industrial production and industrial confidence


in the euro area, first quarter 2005-third quarter 2011 ........................................................................................................ 102
IV. 4 Currency composition of outstanding loans in Croatia, 2002-2011 .............................................................................. 109
IV. 5 The general slowdown in GDP growth rates in the


Commonwealth of Independent States and Georgia ......................................................................................................... 110
IV. 6 GDP growth rates in selected East Asian economies, 2011-2012 ................................................................................... 117
IV. 7 Central Government deficits in selected South Asian countries, fiscal years 2009-2011 ................................. 122
IV. 8 Diverging GDP growth trajectories in Western Asia, 2000-2013 ...................................................................................... 123
IV. 9 Growth forecast for Latin America and the Caribbean, 2012 ............................................................................................. 126


Tables


I. 1 Growth of world output, 2005-2013 ................................................................................................................................................. 4
I. 2 A downside scenario for the world economy ............................................................................................................................. 20
II. 1 Rankings of top developing countries and economies


in transition in trade in services, 2006-2010 ............................................................................................................................... 61
II. 2 Maritime sectors, comparison ............................................................................................................................................................... 62
III. 1 Net financial flows to developing countries and economies in transition, 1998-2012 ..................................... 69
III. 2 Net transfers of financial resources to developing economies


and economies in transition, 1999-2011 ...................................................................................................................................... 76
III. 3 Selected capital account regulations taken by developing countries (since 2009) ............................................ 77




xxvContents


Explanatory Notes


The following symbols have been used in the tables throughout the report:


.. Two dots indicate that data are not available or are not separately reported.


– A dash indicates that the amount is nil or negligible.


- A hyphen indicates that the item is not applicable.


− A minus sign indicates deficit or decrease, except as indicated.


. A full stop is used to indicate decimals.


/ A slash between years indicates a crop year or financial year, for example, 2010/11.


- Use of a hyphen between years, for example, 2010-2011, signifies the full period involved, including the beginning and
end years.


Reference to “dollars” ($) indicates United States dollars, unless otherwise stated.


Reference to “billions” indicates one thousand million.


Reference to “tons” indicates metric tons, unless otherwise stated.


Annual rates of growth or change, unless otherwise stated, refer to annual compound rates.


Details and percentages in tables do not necessarily add to totals, because of rounding.


Project LINK is an international collaborative research group for econometric modelling, jointly coordinated by the Development
Policy and Analysis Division of the United Nations Secretariat and the University of Toronto.


For country classifications, see statistical annex.


Data presented in this publication incorporate information available as at 30 November 2011.




xxvi World Economic Situation and Prospects 2012


The following abbreviations have been used:


AfDB African Development Bank
APT ASEAN plus Three
ADB Asian Development Bank
ASEAN Association of Southeast Asian Nations
BIS Bank for International Settlements
BRICS Brazil, the Russian Federation, India,


China and South Africa
CDB Caribbean Development Bank
CIS Commonwealth of Independent States
CPB Central Planning Bureau of the Netherlands
CPI consumer price index
DAC Development Assistance Committee


(of the Organization for Economic
Cooperation and Development)


DCF Development Cooperation Forum
(of the United Nations)


DSA Debt sustainability analysis
(of the International Monetary Fund)


EBRD European Bank for Reconstruction
and Development


ECA Economic Commission for Africa
ECB European Central Bank
ECE Economic Commission for Europe
ECLAC Economic Commission for Latin America
EFSF European Financial Stability Facility
EFSM European Financial Stabilisation Mechanism
ESM European Stability Mechanism
EU European Union
EURIBOR Euro Interbank Offered Rate
FAO Food and Agriculture Organization


of the United Nations
FDI foreign direct investment
Fed United States Federal Reserve
FSB Financial Stability Board
GATT General Agreement on Tariffs and Trade
G8 Group of Eight
G20 Group of Twenty
GCC Gulf Cooperation Council
GDP gross domestic product
GHG greenhouse gas
GNI gross national income
G-SIFIs globally systemically important


financial institutions
HICP Harmonised Index of Consumer Prices
HIPC heavily indebted poor countries
IaDB Inter-American Development Bank


IBRD International Bank for Reconstruction
and Development


IDA International Development Association
IEA International Energy Agency
IFAD International Fund for Agricultural Development
ILO International Labour Organization
IMF International Monetary Fund
LDCs least developed countries
LLDCs landlocked developing countries
MAP Mutual Assessment Process
mbd millions of barrels per day
MDGs Millennium Development Goals
MDRI Multilateral Debt Relief Initiative
MFN most favoured nation
NTMs non-tariff measures
ODA official development assistance
OECD Organization for Economic Cooperation


and Development
OPEC Organization of the Petroleum


Exporting Countries
pb per barrel
PLL Precautionary and Liquidity Line
PPP purchasing power parity
RTAs regional and bilateral trade agreements
SDRs Special Drawing Rights
SGP Stability and Growth Pact
SIDS small island developing States
SIFIs systemically important financial institutions
TEUs twenty-foot equivalent units
UN/DESA Department of Economic and Social Affairs


of the United Nations Secretariat
UN Comtrade United Nations Commodity Trade Statistics Database


(of the United Nations)
UNCTAD United Nations Conference on Trade


and Development
UNFCCC United Nations Framework Convention


on Climate Change
UNICEF United Nations Children’s Fund
UNFPA United Nations Population Fund
UNWTO World Tourism Organization
WEFM World Economic Forecasting Model


(of the United Nations)
WEVUM World Economic Vulnerability Monitor


(of the United Nations)
WFP World Food Programme
WGP world gross product
WTO World Trade Organization




1


Chapter I
Global economic outlook


Prospects for the world economy in 2012-2013
Following two years of anaemic and uneven recovery from the global financial crisis, the
world economy is teetering on the brink of another major downturn. Output growth
has already slowed considerably during 2011, especially in the developed countries. The
baseline forecast foresees continued anaemic growth during 2012 and 2013. Such growth
is far from sufficient to deal with the continued jobs crises in most developed economies
and will drag down income growth in developing countries.


Even this sombre outlook may be too optimistic. A serious, renewed global
downturn is looming because of persistent weaknesses in the major developed economies
related to problems left unresolved in the aftermath of the Great Recession of 2008-2009.


The problems stalking the global economy are multiple and interconnected.
The most pressing challenges are the continued jobs crisis and the declining prospects for
economic growth, especially in the developed countries. As unemployment remains high,
at nearly 9 per cent, and incomes stagnate, the recovery is stalling in the short run because
of the lack of aggregate demand. But, as more and more workers remain out of a job for a
long period, especially young workers, medium-term growth prospects also suffer because
of the detrimental effect on workers’ skills and experience.


The rapidly cooling economy is both a cause and an effect of the sovereign
debt crises in the euro area, and of fiscal problems elsewhere. The sovereign debt crises in
a number of European countries worsened in the second half of 2011 and aggravated the
weaknesses in the balance sheets of banks sitting on related assets. Even bold steps by the
Governments of the euro area countries to reach an orderly sovereign debt workout for
Greece were met with continued financial market turbulence and heightened concerns
of debt default in some of the larger economies in the euro zone, Italy in particular. The
fiscal austerity measures taken in response are further weakening growth and employment
prospects, making fiscal adjustment and the repair of financial sector balance sheets all
the more challenging. The United States economy is also facing persistent high unem-
ployment, shaken consumer and business confidence, and financial sector fragility. The
European Union (EU) and the United States of America form the two largest economies
in the world, and they are deeply intertwined. Their problems could easily feed into each
other and spread to another global recession. Developing countries, which had rebounded
strongly from the global recession of 2009, would be hit through trade and financial chan-
nels. The financial turmoil following the August 2011 political wrangling in the United
States regarding the debt ceiling and the deepening of the euro zone debt crisis also caused
a contagious sell-off in equity markets in several major developing countries, leading to
sudden withdrawals of capital and pressure on their currencies.


Political divides over how to tackle these problems are impeding needed,
much stronger policy action, further eroding the already shattered confidence of business
and consumers. Such divides have also complicated international policy coordination.
Nonetheless, as the problems are deeply intertwined, the only way for policymakers to save
the global economy from falling into a dangerous downward spiral is to take concerted
action, giving greater priority to revitalizing the recovery in output and employment in the
short run in order to pave more solid ground for enacting the structural reforms required
for sustainable and balanced growth over the medium and long run.


The world economy is
on the brink of another
recession


The problems are multiple
and interconnected


Policy paralysis has become
a major stumbling block




2 World Economic Situation and Prospects 2012


Faltering growth


Surrounded by great uncertainties, the United Nations baseline forecast is premised on a
set of relatively optimistic conditions, including the assumptions that the sovereign debt
crisis in Europe will, in effect, be contained within one or just a few small economies, and
that those debt problems can be worked out in more or less orderly fashion. As indicated
in box I.1, it further assumes that monetary policies among major developed countries will
remain accommodative, while the shift to fiscal austerity in most of them will continue as
planned but not move to deeper cuts. The baseline also assumes that key commodity prices
will fall somewhat from current levels, while exchange rates among major currencies will
fluctuate around present levels without becoming disruptive.


In this scenario, which could be deemed one of “muddling through”, growth
of world gross product (WGP) is forecast to reach 2.6 per cent in the baseline outlook for
2012 and 3.2 per cent for 2013. This entails a significant downgrade (by one percentage
point) from the United Nations baseline forecast of mid-20111 but is in line with the pes-
simistic scenario laid out at the end of 2010.2 The deceleration was already visible in 2011
when the global economy expanded by an estimated 2.8 per cent, down from 4.0 per cent
in 2010 (table I.1 and figure I.1). The risks for a double-dip recession have heightened.
As discussed in the section on the downside risks below, in accordance with a more pes-
simistic scenario—including a disorderly sovereign debt default in Europe and more fis-
cal austerity—developed countries would enter into a renewed recession and the global
economy would come to a near standstill (see table I.2 below). More benign outcomes
for employment and sustainable growth worldwide would require much more forceful
and internationally concerted action than that embodied in current policy stances. The
feasibility of such an optimistic scenario, which would push up global output growth to
about 4.0 per cent, is discussed in box I.4 and in the section on policy challenges.


Developing countries and economies in transition are expected to continue to
stoke the engine of the world economy, growing on average by 5.6 per cent in 2012 and
5.9 per cent in 2013 in the baseline outlook. This is well below the pace of 7.5 per cent
achieved in 2010, when output growth among the larger emerging economies in Asia and
Latin America, such as Brazil, China and India, had been particularly robust. Even as
economic ties among developing countries strengthen, they remain vulnerable to economic
conditions in the developed economies. From the second quarter of 2011, economic growth
in most developing countries and economies in transition started to slow notably to a pace
of 5.9 per cent for the year. Initially, this was the result, in part, of macroeconomic policy
tightening in attempts to curb emerging asset price bubbles and accelerating inflation,
which in turn were fanned by high capital inflows and rising global commodity prices.
From mid-2011 onwards, growth moderated further with weaker external demand from
developed countries, declining primary commodity prices and some capital flow reversals.
While the latter two conditions might seem to have eased some of the macroeconomic
policy challenges earlier in the year, amidst increased uncertainty and volatility, they have
in fact complicated matters and have been detrimental to investment and growth.


The economic woes in many developed economies are a major factor behind the
slowdown in developing countries. Economic growth in developed countries has already


1 See United Nations, World economic situation and prospects as of mid-2011 (E/2011/113), available
from http://www.un.org/en/development/desa/policy/wesp/wesp_current/2011wespupdate.pdf.


2 See World Economic Situation and Prospects 2011 (United Nations publication, Sales No. E.11.
II.C.2), pp. 34-35, available from http://www.un.org/en/development/desa/policy/wesp/wesp_
current/2011wesp.pdf.


Global output growth is
slowing and risks for a
double-dip recession


have heightened


Developing country growth
remains strong, but


is decelerating…


…because of the economic
problems in developed


countries




3Global economic outlook


Key assumptions for the United Nations
baseline forecast for 2012 and 2013


The forecast presented in the text is based on estimates calculated using the United Nations World
Economic Forecasting Model (WEFM) and is informed by country-specific economic outlooks pro-
vided by participants in Project LINK, a network of institutions and researchers supported by the
Department of Economic and Social Affairs of the United Nations. The provisional individual country
forecasts submitted by country experts are adjusted based on harmonized global assumptions and
the imposition of global consistency rules (especially for trade flows, measured in both volume and
value) set by the WEFM. The main global assumptions are discussed below and form the core of the
baseline forecast—the scenario that is assigned the highest probability of occurrence. Alternative
scenarios are presented in the sections on “risks and uncertainties” and “policy challenges”. Those
scenarios are normally assigned lower probability than the baseline forecast, but in the present vola-
tile and uncertain economic context, the pessimistic scenario presented in the “risks and uncertain-
ties” section should be assigned a probability at least as high as that of the baseline.


Background to the baseline assumptions


It is assumed that within the span of the forecasting period, the sovereign debt crisis in Europe will be
contained and that adequate measures will be taken to avert a liquidity crisis that could lead to major
bank insolvencies and a renewed credit crunch. These measures include an orderly restructuring of
Greek debt, some degree of bank recapitalization and a strengthening of the European Financial
Stability Facility (EFSF) so that markets perceive that there is sufficient firepower to handle a possible
default by one of the larger member countries. The recently announced package agreed on at the
summit meeting of euro area leaders in October, if fully implemented, covers, albeit imperfectly,
most of these issues. In addition, it is assumed that the plans announced for fiscal consolidation and
restructuring will be implemented in the crisis-affected countries. In the United States, it is assumed
that either the Joint Select Committee on Deficit Reduction would come to an agreement on a pack-
age to cut $1.2 trillion in Government spending over the next 10 years or, in case of no agreement,
that the contingency plan for a similar sized annual budget reduction of $120 billion would come into
effect (see also note 3). More broadly, the planned macroeconomic policies of major economies for
the short run (2012-2013), as also reflected in the Cannes Action Plan for Growth and Jobs adopted on
4 November 2011 by the leaders of the Group of Twenty (G20), are all assumed to be followed through
in the baseline scenario.


Monetary and fiscal policy assumptions for major economies


The Federal Reserve Bank of the United States (Fed) is assumed to keep the federal funds interest rate
at its current low level of between 0.0 and 0.25 per cent until the end of 2013. The Fed will implement
the planned swap of its holdings of $400 billion in short-term Treasury Bills for long-term Government
bonds, and will also reinvest the receipts of maturing assets, so as to maintain the size of its current
asset holdings. The European Central Bank (ECB) is assumed to make another 25 basis-point cut in its
main policy rate by the end of the year, bringing the minimum bid rate back down to 1.0 per cent.
The ECB is expected to continue to provide liquidity to banks through a number of facilities, such as
refinancing operations of various term-lengths and purchasing sovereign bonds under the Securities
Markets Programme (SMP). The Bank of Japan (BoJ) is assumed to keep its main policy interest rate
at 0.05 per cent and to continue to use its balance sheet to manage liquidity—through the Asset
Purchase Program (APP)—to buy risk assets, such as commercial paper and corporate bonds, in ad-
dition to Government bonds and bills. The BoJ is also assumed to continue to intervene in foreign
exchange markets to stabilize the value of the yen. In major emerging economies, the People’s Bank
of China (PBC) is expected to keep its monetary tightening on hold, based on a contingent assump-
tion that inflation in the economy will start to moderate.


In terms of fiscal policy, it is assumed that in the United States only the items for the
payroll tax cut and emergency unemployment compensation of the proposed American Jobs Act
will be enacted and that long-term deficit-reduction actions will come into effect from January 2013.


Box I.1




4 World Economic Situation and Prospects 2012


In the euro area, as well as in most economies in Western Europe, it is assumed that the plans an-
nounced for fiscal consolidation will be fully implemented. In Japan, the total size of the five-year
post-earthquake reconstruction plan is estimated to cost ¥19 trillion, or 4  per  cent of GDP, to be
financed mostly by increases in taxes. In China, the fiscal stance is expected to remain “proactive”,
with increased spending on education, health care and social programmes.


Exchange rates among major currencies


It is assumed that the euro will fluctuate around a yearly average of $1.36 in 2012 and 2013, implying
a depreciation of 2.5 per cent from its 2011 level. The Japanese yen is assumed to average about ¥78
to the dollar for the rest of the forecast period, representing an appreciation of 2.4 per cent in 2012
compared with the average exchange rate in 2011; during 2011, the yen had already appreciated by
8.9 per cent. The Chinese renminbi is assumed to average CN¥ 6.20 per United States dollar in 2012
and CN¥ 6.02 in 2013, appreciating by 3.9 and 2.9 per cent, respectively.


Oil prices


Brent oil prices are assumed to average about $100 per barrel (pb) during both 2012 and 2013, down
from $107 pb in 2011.


Box I.1 (cont’d)


Table I.1
Growth of world output, 2005-2013


Annual percentage change


2005-
2008a 2009 2010b 2011c 2012c 2013c


Change from June
2011 forecast d


2011 2012


World 3.3 -2.4 4.0 2.8 2.6 3.2 -0.5 -1.0


Developed economies 1.9 -4.0 2.7 1.3 1.3 1.9 -0.7 -1.1
United States of America 1.8 -3.5 3.0 1.7 1.5 2.0 -0.9 -1.3
Japan 1.3 -6.3 4.0 -0.5 2.0 2.0 -1.2 -0.8
European Union 2.2 -4.3 2.0 1.6 0.7 1.7 -0.1 -1.2


EU-15 2.0 -4.3 1.9 1.5 0.5 1.6 -0.2 -1.2
New EU members 5.4 -3.7 2.3 2.9 2.6 3.1 -0.2 -1.4
Euro area 2.0 -4.3 1.9 1.5 0.4 1.3 -0.1 -1.2


Other European countries 2.6 -1.9 1.5 1.0 1.1 1.6 -1.0 -0.9
Other developed countries 2.6 -1.0 2.9 1.4 2.2 2.5 -1.4 -0.5


Economies in transition 7.1 -6.6 4.1 4.1 3.9 4.1 -0.3 -0.7
South-Eastern Europe 5.0 -3.7 0.6 1.7 2.3 3.2 -0.5 -0.8
Commonwealth of Independent
States and Georgia 7.3 -6.9 4.5 4.3 4.0 4.2 -0.3 -0.8


Russian Federation 7.1 -7.8 4.0 4.0 3.9 4.0 -0.4 -0.7
Developing economies 6.9 2.4 7.5 6.0 5.6 5.9 -0.2 -0.6


Africa 5.4 0.8 3.9 2.7 5.0 5.1 -0.9 -0.4
North Africa 5.0 3.2 4.0 -0.5 4.7 5.5 -1.2 -0.3
Sub-Saharan Africa 5.9 1.7 4.8 4.4 5.3 5.0 -0.5 -0.2


Nigeria 4.6 -8.3 2.8 6.3 6.8 7.0 0.6 0.5
South Africa 5.0 -1.7 2.8 3.1 3.7 3.5 -0.6 -1.1
Others 6.7 3.6 5.1 4.8 5.8 5.3 -1.1 0.1


East and South Asia 8.3 5.2 8.8 7.1 6.8 6.9 -0.1 -0.4
East Asia 8.5 5.1 9.2 7.2 6.9 6.9 -0.1 -0.3


China 11.9 9.2 10.4 9.3 8.7 8.5 0.2 -0.2
South Asia 7.8 5.5 7.2 6.5 6.7 6.9 -0.4 -0.3


India 9.0 7.0 9.0 7.6 7.7 7.9 -0.5 -0.5




5Global economic outlook


Table I.1 (cont’d)


2005-
2008a 2009 2010b 2011c 2012c 2013c


Change from June
2011 forecastd


2011 2012


Western Asia 5.4 -0.9 6.3 6.6 3.7 4.3 0.8 -0.5
Latin America and the Caribbean 5.0 -2.1 6.0 4.3 3.3 4.2 -0.2 -1.6


South America 5.6 -0.4 6.4 4.6 3.6 4.5 -0.4 -1.6
Brazil 4.6 -0.6 7.5 3.7 2.7 3.8 -1.4 -2.6


Mexico and Central America 3.5 -5.7 5.6 3.8 2.7 3.6 0.0 -1.6
Mexico 3.2 -6.3 5.8 3.8 2.5 3.6 0.1 -1.8


Caribbean 7.1 0.9 3.5 3.4 3.6 4.3 -0.6 -1.1
By level of development


High-income countries 2.1 -3.7 3.0 1.6 1.5 2.0
Upper middle income countries 7.5 1.2 7.3 6.1 5.5 6.0
Lower middle income countries 7.0 4.3 6.8 5.9 6.4 6.6
Low-income countries 6.2 4.8 6.1 5.7 6.0 5.9
Least developed countries 7.8 5.2 5.6 4.9 6.0 5.7 -0.7 0.2


Memorandum items


World tradee 6.8 -9.9 12.8 6.6 4.4 5.7 -0.5 -2.4
World output growth with
PPP-based weights 4.4 -0.9 4.9 3.7 3.6 4.1 -0.4 -0.8


Source: UN/DESA.


a Average percentage change.
b Actual or most recent estimates.
c Forecasts, based in part on Project LINK and baseline projections of the UN/DESA World Economic Forecasting Model.
d See United Nations, World economic situation and prospects as of mid-2011 (E/2011/113).
e Includes goods and services.


Figure I.1
Growth of world gross product, 2006-2013


Percentage


Base
line s


cena
rio


Optimistic scenario


Pessim
istic scenario


4.1 4.0


1.5


4.0


2.8
2.6


3.9
3.2


4.0


0.5


2.2


-2.4
-3


-2


-1


0


1


2


3


4


5


2006 2007 2008 2009 2010 2011a 2012b 2013b


Sources: UN/DESA and
Project LINK.
Note: See box I.1 for
assumptions underlying the
baseline forecasts, section
on “Risks and uncertainties”
for assumptions for the
pessimistic scenario and box
I.4 for the optimistic scenario.
a Estimates.
b United Nations forecasts.




6 World Economic Situation and Prospects 2012


slowed to 1.3 per cent in 2011, down from 2.7 per cent in 2010, and is expected to remain
anaemic in the baseline outlook, at 1.3 per cent in 2012 and 1.9 per cent in 2013. At this
pace, output gaps are expected to remain significant and unemployment rates will stay high.


Most developed economies are suffering from predicaments lingering from
the global financial crisis. Banks and households are still in the process of a deleveraging
which is holding back credit supplies. Budget deficits have widened and public debt has
mounted, foremost because of the deep downturn and, to a much lesser extent, because
of the fiscal stimulus. Monetary policies remain accommodative with the use of various
unconventional measures, but have lost their effectiveness owing to continued financial
sector fragility and persistent high unemployment which is holding back consumer and
investment demand. Concerns over high levels of public debt have led Governments to
shift to fiscal austerity, which is further depressing aggregate demand.


Growth in the United States slowed notably in the first half of 2011. Despite a
mild rebound in the third quarter of the year, gross domestic product (GDP) is expected
to weaken further in 2012 and even a mild contraction is possible during part of the year
under the baseline assumptions. While, if enacted in full, the American Jobs Act proposed
by the Government could have provided some stimulus to job creation, it would not have
been sufficient to prevent further economic slowdown, as fiscal stimulus has already faded
overall with many job losses caused by cuts in state-level budgets. Even as the total public
debt of the United States has risen to over 100  per  cent of GDP, yields on long-term
Government bonds remain at record lows. This would make stronger fiscal stimulus af-
fordable, but politically difficult to enact in a context where fiscal prudence is favoured and
where the country has already been on the verge of defaulting on its debt obligations in
August of 2011 because of political deadlock over raising the ceiling on the level of federal
public debt. Failure by the congressional Joint Select Committee on Deficit Reduction
to reach agreement in November of 2011 on fiscal consolidation plans for the medium
term has added further uncertainty.3 The uncertain prospects are exacerbating the fragility
of the financial sector, causing lending to businesses and consumers to remain anaemic.
Persistent high unemployment, at a rate of 8.6 per cent, and low wage growth are further
holding back aggregate demand and, together with the prospect of prolonged depressed
housing prices, have heightened risks of a new wave of home foreclosures.


Growth in the euro area has slowed considerably since the beginning of 2011,
and the collapse in confidence evidenced by a wide variety of leading indicators and meas-
ures of economic sentiment suggest a further slowing ahead, perhaps to stagnation by
the end of 2011 and into early 2012. Even under the optimistic assumption that the debt
crises can be contained within a few countries, growth is expected to be only marginally
positive in the euro area in 2012, with the largest regional economies dangerously close to
renewed downturns and the debt-ridden economies in the periphery either in or very close
to a protracted recession.


3 When the debt ceiling was lifted in August 2011, it was agreed that a bipartisan “supercommittee”
try to reach agreement, before the end of November, on reducing the Federal budget deficit by
$1.2 trillion over the medium run. The committee failed to do so, triggering an agreed back-up
plan according to which the United States Government would enact spending cuts to the tune of
$110 billion in each fiscal year from 2013 to 2021. This failure to reach an agreement in Congress
does not alter the baseline scenario for this report. However, it has heightened the downside risks,
in particular with regard to what will happen with regard to two stimulus measures expiring on
1 January 2012, namely, the 2 per cent payroll tax cut and emergency unemployment insurance
benefits. At the time of writing, it is still possible for Congress to extend these measures. Should
that not occur, it would affect the 2012 baseline projection for GDP growth in the United States,
lowering it by an estimated 0.6 percentage points. It would further erode consumer and investor
confidence and increase the risk of the downside scenario’s materializing.


Developed countries
suffer from predicaments
lingering from the global


financial crisis




7Global economic outlook


Japan was in another recession in the first half of 2011, resulting largely, but
not exclusively, from the disasters caused by the March earthquake. While post-quake re-
construction is expected to lift GDP growth in Japan to about 2 per cent per year, which is
above its long-term trend, in the coming two years, risks remain on the downside, emanat-
ing from the challenges of financing the reconstruction and coping with a possible, more
pronounced and synchronized downturn along with other major developed economies.


As indicated above, developing countries are expected to be further affected by
the economic woes in developed countries through trade and financial channels. Among the
major developing countries, China’s and India’s GDP growth is expected to remain robust,
but to decelerate. In China, growth slowed from 10.4 per cent in 2010 to 9.3 per cent in
2011 and is projected to slow further to below 9 per cent in 2012-2013. India’s economy is
expected to expand by between 7.7 and 7.9 per cent in 2012-2013, down from 9.0 per cent
in 2010. Brazil and Mexico are expected to suffer more visible economic slowdowns. Output
growth in Brazil was already halved, to 3.7 per  cent, in 2011, after a strong recovery of
7.5 per cent in 2010, and is expected to cool further to a 2.7 per cent growth in 2012. Growth
of the Mexican economy slowed to 3.8 per cent in 2011 (down from 5.8 per cent in 2010),
and is anticipated to decelerate further, to 2.5 per cent, in the baseline scenario for 2012.


Low-income countries have also seen a slowdown, albeit a mild one. In per
capita terms, income growth slowed from 3.8 per cent in 2010 to 3.5 per cent in 2011,
but despite the global slowdown, the poorer countries may see average income growth
at or slightly above this rate in 2012 and 2013 (see figure I.2). The same holds for aver-
age growth among the United Nations category of the least developed countries (LDCs).
Nonetheless, growth is expected to remain below potential in most of these economies.
In 2011 and 2012, per capita income growth is expected to reach between 2.0 and
2.5 per cent, well below the annual average of 5.0 per cent reached in 2004-2007. Despite


Growth in LDCs is
below potential, but
strengthening mildly


Figure I.2
Growth of GDP per capita, by level of development, 2000-2013


Percentage


-6


-4


-2


0


2


4


6


8


10


2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011a 2012b 2013b


Sources: UN/DESA and
Project LINK.
a Estimates.
b United Nations forecasts.


High-income
countries


Upper middle
income countries


Lower middle
income countries


Low-income
countries


Least developed
countries




8 World Economic Situation and Prospects 2012


the high vulnerability of most LDCs to commodity price shocks, they tend to be less ex-
posed to financial shocks, and mild growth in official development assistance (ODA) has
provided them with a cushion against the global slowdown. Conditions vary greatly across
these economies, however; as discussed in box I.2, Bangladesh and several of the LDCs
in East Africa are showing strong growth, while adverse weather conditions and/or fragile
political and security situations continue to plague economies in the Horn of Africa and
in parts of South and Western Asia.


Prospects for the least developed countries


The least developed countries (LDCs) will continue to see a growth performance that stands apart from
the global pattern. While world economic growth decelerated markedly in 2011, LDCs experienced
only a mild slowdown from 5.6 per cent in 2010 to 4.9 per cent in 2011. In the outlook for 2012, LDCs
are expected to escape the global trend, with gross domestic product (GDP) growth ticking up again
to 5.9 per cent. Even so, growth is expected to remain below potential in most of these economies.
In 2011 and 2012, per capita income growth is expected to reach between 2.0 and 2.5 per cent, well
below the annual average of 5.0 per cent reached in 2004-2007. Despite the high vulnerability of most
LDCs to commodity price shocks, they tend to be less exposed to financial shocks, and mild growth in
official development assistance (ODA) has provided them with a cushion against the global slowdown.


Conditions vary greatly across these economies, however (see figure). As a positive ex-
ample, Bangladesh’s economy grew by 6.5 per cent in 2011, continuing the upward trend of the pre-
vious year. Growth was underpinned by a robust expansion in private consumption and investment
and a recovery in exports. Export revenues were boosted by strong apparel sales as the European
Union enhanced duty-free market access for LDCs and international retailers shifted production to
Bangladesh because of the country’s low labour costs. Despite a slowdown in exports, growth is
forecast to remain robust in 2012.


Box I.2


GDP growth in the least developed countries, 2010-2011 and 2012


Percentage


Angola


Bangladesh


Benin


Chad


Equatorial Guinea


Ethiopia


Haiti


Lesotho


Liberia


Madagascar


Malawi


Mali


Mozambique


Myanmar


Nepal


Niger


United Republic of Tanzania


Uganda


Zambia


0.0


2.0


4.0


6.0


8.0


10.0


0.0 2.0 4.0 6.0 8.0 10.0
2010-2011


20
12


Source: UN/DESA.
Note: Data for 2012 refer


to the United Nations
baseline forecast. Data


for 2010-2011 refer to the
two-year average growth


rate, with that for 2011
being partly estimated.




9Global economic outlook


Unemployment—a key policy concern


Three years after the onset of the Great Recession, persistent high unemployment remains
the Achilles heel of economic recovery in most developed countries. The unemployment
rate averaged 8.6 per cent in developed countries in 2011, still well above the pre-crisis
level of 5.8 per cent registered in 2007. At more than 20 per cent, the rate remains the
highest in Spain, while Norway’s jobless rate is the lowest, at 3.5 per cent. Notably, the
unemployment rate in the United States has remained at about 9 per cent since 2009, with
virtually no improvement in the labour market during 2011 as layoffs in the public sector
have partly offset job creation in the private sector and labour force growth has kept pace
with overall employment growth.


In many developed economies, the actual situation is worse than reflected in
the official unemployment rates. In the United States, for instance, labour participation
rates have been on a steady decline since the start of the crisis. Increasing numbers of work-
ers without a job for a prolonged period have stopped looking for one and are no longer
counted as part of the labour force. About 29 per cent of the unemployed in the United
States have been without a job for more than one year, up from 10 per cent in 2007. Such
a prolonged duration of unemployment tends to have significant long-lasting detrimental


The protracted jobs crisis
in developed countries
is harming long-term
prospects


Angola is also witnessing robust growth, which is forecast to accelerate from 4.1 per cent
in 2011 to 9.2 per cent in 2012 on the back of rising production in the hydrocarbon sector. However,
despite the positive headline growth figures, the country continues to suffer from a lack of economic
diversification and higher value added activities in the private sector, as well as from institutional
deficits.


In Nepal, economic activity continued to be hindered by political uncertainty and a
fragile security situation, in addition to other factors, such as power shortages. Real GDP growth
declined from 4.6 per cent in 2010 to 3.9 per cent in 2011 as solid growth in private consumption was
largely offset by a contraction in investment and exports. Tourism earnings and remittance inflows
registered moderate gains, a trend that is likely to continue in 2012. The manufacturing, construction
and banking sectors are expected to perform slightly better in 2012, lifting growth to a still meagre
and below-potential 4.3 per cent. Similarly, in Uganda, solid growth due to strong investment in the
natural resources sector and vibrant construction, transport and communication sectors has become
subject to increasing downside risks in the light of lingering political unrest.


By contrast, a number of other LDCs find themselves in outright dire situations. In the
Horn of Africa, severe drought conditions have led to a famine that is taking a heavy humanitarian
toll, especially among children, and forcing many people to flee their homes. Somalia has been hit
especially hard, as drought has compounded an already disastrous situation stemming from poverty
and military conflict.


Across the group of LDCs, continued and growing (albeit slowly) ODA has provided a
buffer to weather the crosscurrents of the unstable and volatile global economic environment.


The overall positive economic outlook for LDCs remains subject to considerable risks. A
pronounced fall in oil prices would hit oil exporters such as Angola especially hard, compounding a
situation that is problematic even in a time of solid oil prices, in view of high income inequality and a
shortfall in private sector business activity owing to the dominant role of the State. A further risk lies
in the continued dependence of public budgets in many LDCs on ODA flows. If the pressure for fiscal
consolidation in developed economies feeds through into pronounced cuts in ODA, policymakers in
LDCs would see their room to manoeuvre limited further. Another risk lies in the weather pattern and,
in this context, also in the possibility of more lasting changes in climate conditions. Compounding
the negative fallout from adverse weather conditions is the fact that agriculture is the dominant
economic sector in many LDCs.


Box I.2 (cont’d)




10 World Economic Situation and Prospects 2012


impacts on both the individuals who have lost their jobs and on the economy as a whole.
The skills of unemployed workers deteriorate commensurate with the duration of their
unemployment, most likely leading to lower earnings for those individuals who are even-
tually able to find new jobs. At the aggregate level, the higher the proportion of workers
trapped in protracted unemployment, the greater the adverse impact on the productiv-
ity of the economy in the medium to long run. The International Labour Organization
(ILO) estimated that by the first quarter of 2011, almost one third of the unemployed in
developed countries had been without a job for more than one year, a situation affecting
about 15 million workers (figure I.3).4


In developing countries, employment recovery has been much stronger than
in developed economies. For instance, unemployment rates are back to or below pre-
crisis levels in most Asian developing countries, while employment has recovered in most
countries in Latin America also. However, developing countries continue to face major
challenges owing to the high shares of workers that are underemployed, poorly paid, have
vulnerable job conditions or lack access to any form of social security. At the same time,
open unemployment rates remain high, at well over 10 per cent in urban areas, with the
situation being particularly acute in a number of African and Western Asian countries.
Long-term unemployment has also increased in developing countries (figure I.3).


High youth unemployment is a concern worldwide. Unemployment rates
among youth (persons 15-24 years of age)  tend to be higher than other cohorts of the
labour force in normal times in most economies, but the global financial crisis and its
consequent global recession have increased this gap in most parts of the world. Barring


4 Estimate of total long-term unemployment in developed economies, based on International
Labour Organization (ILO) labour statistics database (LABORSTA), accessed 22 November 2011.


Despite employment
recovery, long-term


unemployment is also a
concern in developing


countries


Youth unemployment is a
major concern worldwide


Figure I.3
Long-term unemployment in developed and developing countries, 2009 and 2011


Ratio of total unemployment (percentage)


0


5


10


15


20


25


30


35


Developed Developing


2009, rst quarter


2011, rst quarter


Source: International Labour
Organization (ILO), World of
Work Report 2011 (Geneva).




11Global economic outlook


data limitations, the jobless rate among young workers in developed countries increased
from an estimated 13 per cent in 2008 to about 18 per cent by the beginning of 2011. In
Spain, an astonishing 40 per cent of young workers are without a job. A quarter or more
of the youth in Western Asia and North Africa and one fifth of those in the economies
in transition are unemployed. Also, in other developing regions, youth unemployment
has increased more than that of other age groups. Latin America and the Caribbean,
in particular, experienced significant increases in youth unemployment since 2008, al-
though the situation started to improve in the first half of 2011. In East Asia, South
Asia and Africa, young workers have a high probability of facing vulnerable employment
conditions.


Skilled and unskilled young workers are affected by unemployment in dif-
ferent ways. Skilled youth that lose their jobs tend to have greater difficulty in getting
a new job than more experienced workers and, hence, tend to face longer periods of
unemployment than other workers; when they do find new jobs, they mostly have to
settle for salaries lower than they earned before. Since entry salaries affect future salaries,
youth who have lost jobs during the current financial crisis will face the risk of getting
lower salaries for a prolonged period, even after the economy recovers. This group of
unemployed, educated youth has recently received attention in the political debate as the
“lost generation”. Unskilled young workers who have recently lost jobs have been found
to be at greater risk of becoming “discouraged workers”, leading them to exit the labour
force and end up dependent upon families and social programmes in the long term, es-
pecially in developed economies where such programmes exist. In developing economies,
unskilled youth in unemployment face the additional risk of a permanent loss of access
to decent work, causing them to stay outside the formal economy and have much lower
lifetime earnings.


Meanwhile, more young people continue to enter labour markets worldwide.
In order to restore pre-crisis employment and absorb the new labour entrants, an employ-
ment deficit, estimated at 64 million jobs in 2011, would need to be eliminated.5 With
the global economic slowdown projected in the baseline and growth of the workforce
worldwide, however, the deficit would increase further, leaving a job shortage of about 71
million, of which about 17 million would be in developed countries.6 If economic growth
stays as anaemic in developed countries as is projected in the baseline forecast, employ-
ment rates will not return to pre-crisis levels until far beyond 2015 (figure I.4).


Persistent high unemployment is holding back wage growth and consumer
demand and, especially in the United States, pushing up delinquency on mortgage pay-
ments. Combined with continued financial fragility in the developed economies, it is also
depressing investment demand and business confidence and further holding back eco-
nomic recovery.


Benign inflation outlook


Inflation has increased worldwide in 2011, driven by a number of factors, particularly the
supply-side shocks that have pushed up food and oil prices and strong demand in large


5 Using ILO data, the employment deficit is estimated here as the difference between the global
employment rate as observed in 2007 and 2011 multiplied by the working-age population.


6 Estimate based on the UN/DESA Global Policy Model. See box I.4 and the appendix table to the
present chapter for baseline trends in employment rates in major economies and an assessment
of an alternative policy scenario to eliminate the deficit.


To make up for the
employment deficit left
by the crisis, 64 million
jobs need to be created
worldwide




12 World Economic Situation and Prospects 2012


developing economies as a result of rising incomes and wages. Reflationary monetary poli-
cies in major developed economies have also contributed to upward pressure by, among
other things, increasing liquidity in financial markets, which has kept interest rates down
but has also increased financial investment in commodity futures markets, inducing an
upward bias in commodity prices and enhancing volatility (see chap. II).


Among the developed economies, inflation rates in the United States and
Europe have edged up during 2011, moving from the lower to the upper bound of the
inflation target bands set by central banks. This increase was in line with the policy objec-
tive in these economies, aimed at mitigating the risk of deflation in the aftermath of the
financial crisis, as their central banks continued to inject more liquidity into the economy
through various unconventional policy measures. In Japan, the disruption caused by the
earthquake in March 2011, along with other factors, pushed up the general price level,
ending a protracted period of deflation. Nonetheless, inflation should not be a major
policy concern for most developed economies. Inflation is expected to be moderate in the
outlook for 2012-2013 with the weakening of aggregate demand, subdued wage pressures
in the face of continued high unemployment and—barring major supply shocks—the
moderating of international commodity prices.


Inflation rates surpassed policy targets by a wide margin in a good number of
developing economies. The monetary authorities of these economies have responded with
a variety of measures, including by tightening monetary policy, increasing subsidies on
food and oil, and providing incentives to domestic production. In the outlook, along with
an anticipated moderation in global commodity prices and lower global growth, inflation
in most developing countries is also expected to decelerate in 2012-2013.


Inflation does not pose
a present danger in


developed countries…


…but remains a concern
among developing


countries


Figure I.4
Post-recession employment recovery in the United States, euro area and
developed economies, 2007 (Q1)-2011 (Q2) and projections for 2011 (Q3)-2015 (Q4)


Percentage change


20
07


Q
1


20
07


Q
3


20
08


Q
1


20
08


Q
3


20
09


Q
1


20
09


Q
3


20
10


Q
1


20
10


Q
3


20
11


Q
1


20
11


Q
3


20
12


Q
1


20
12


Q
3


20
13


Q
1


20
13


Q
3


20
14


Q
1


20
14


Q
3


20
15


Q
1


20
15


Q
3


United States
Developed economies
Euro area (16)


-6


-5


-4


-3


-2


-1


0


1


Source: UN/DESA, based on
data from ILO and IMF.
Note: The chart shows


percentage changes of total
employment (as a moving


average) with respect to pre-
recession peaks. Projections


(dashed lines) are based
on estimates of the output


elasticity of employment
(Okun’s law), following a


similar methodology to that
of ILO, World of Work


Report 2011 (Geneva).




13Global economic outlook


The international economic environment
for developing countries and the economies
in transition


Increased volatility in private capital flows


Net private capital inflows7 to emerging and developing economies increased to about
$575 billion in 2011, up by about $90 billion from 2010 levels (figure I.5). The recovery in
capital inflows from their precipitous decline during the global financial crisis continued
until the middle of 2011 but suffered a strong setback with the sharp deterioration in
global financial markets in the third quarter of the year. The current level of inflows
remains well below the pre-crisis peak registered in 2007. As a share of GDP of developing
countries, net capital inflows are at about half of their peak levels. The outlook for external
financing will be subject to uncertainty owing to counteracting forces during 2012 and
2013. On the one hand, continued sovereign debt distress in developed economies will
sustain the present uncertainty and volatility in global financial markets, and this will
likely deter portfolio capital flows to emerging economies. Deepening of the sovereign
debt crisis may lead to more capital being pulled back for deleveraging of financial institu-
tions in developed countries or in a search for safe havens (such as dollar- or Swiss franc-
denominated assets), as was the case during the financial turmoil of the third quarter of
2011. On the other hand, higher growth prospects for most emerging economies (despite
the downgraded forecast) will likely attract more foreign direct investment (FDI), while
interest rate differentials will continue to favour lending to emerging economies even if


7 The measure used here refers to net inflows minus net outflows.


Private capital flows
increased further in 2011…


Figure I.5
Net capital flowsa to developing countries, 2000-2012


Billions of dollars


-1400


-1200


-1000


-800


-600


-400


-200


0


200


400


600


2000 2002 2004 2006 2008 2010 2012


Source: UN/DESA, based on
IMF, World Economic Outlook
database, September 2011.
a Estimates of net capital
flows are based on balance
of payments data and are
defined as “net net”, that is,
as net inflows minus net
outflows.
b Negative value signifies
accumulation of reserves.


Direct investment, net


Other private financial
flows, net


Private portfolio
flows, net


Official flows, net


Change in reservesb




14 World Economic Situation and Prospects 2012


the risk premiums for some of these economies rise further, a trend already visible in the
second half of 2011 (figure I.6).


Short-term portfolio equity flows to developing countries went into a tailspin
in the second half of 2011. As a result, net inflows of portfolio equity to emerging econo-
mies in 2011 are estimated to register a decline of about 35 per cent from 2010 levels,
exhibiting vivid proof of the high volatility these flows tend to be subject to.


International bank lending to emerging and developing economies continued
to recover slowly from its sharp decline in 2009. In 2011, bank lending had recovered to
only about 20 per cent of its pre-crisis peak level, as international banks headquartered in
developed countries continued to struggle in the aftermath of the financial crisis. Non-
bank lending has been more vigorous, as both private and public sectors in emerging
economies managed to increase bond issuance, taking advantage of low interest rates in
global capital markets.


Net FDI remained the largest single component of private capital flows in 2011,
reaching $429 billion, up by more than $100 billion from its 2010 level. Asian emerging
economies received most (about 45 per cent) of the FDI inflows, followed by Latin America.
These estimates are net of FDI from emerging market economies, which continued to in-
crease. China and a few other Asian developing countries further increased investments in
Latin America and Africa, primarily destined towards sectors producing oil, gas and other
primary commodities.


Net disbursements of ODA reached a record high of $128.7 billion in 2010.
Despite this record level, the amount of aid fell well short (by more than $20 billion) of
the commitments made at the Gleneagles Summit of the Group of Eight (G8) on 6 July
2005 and those of other members of the Development Assistance Committee (DAC) of
the Organization for Economic Cooperation and Development (OECD) to increase aid


...although portfolio flows
have shown great volatility


Figure I.6
Daily yield spreads on emerging market bonds, January 2010-October 2011


Ja
n-


20
10


M
ar


-2
01


0


M
ay


-2
01


0


Ju
l-2


01
0


Se
p-


20
10


N
ov


-2
01


0


Ja
n-


20
11


M
ar


-2
01


1


M
ay


-2
01


1


Ju
l-2


01
1


Se
p-


20
11


100


150


200


250


300


350


400


450


Mexico Brazil
Colombia Turkey
South Africa Indonesia
Russian Federation


Source: JPMorgan Chase.




15Global economic outlook


to developing countries. Total ODA increased by 6.5 per cent in real terms in 2010, but
OECD donor surveys suggest that bilateral aid from DAC members to core development
programmes in developing countries will grow at a mere 1.3  per  cent per year during
2011-2013 owing to the fiscal constraints of donors. At the current rate of progress, donors
will not fully deliver on their commitments in the near future and will remain far removed
from the long-standing United Nations target of providing 0.7  per  cent of their gross
national income (GNI) by 2015.


On balance, however, financial resources continue to flow out of the emerging
and developing economies in large quantities as their accumulation of foreign exchange
reserves have increased further. In 2011, emerging economies and other developing coun-
tries are estimated to have accumulated an additional $1.1 trillion in foreign exchange
reserves, totalling about $7 trillion.


Continued volatility in commodity prices


International prices of oil and other primary commodities continued to rise in early 2011,
but declined in the third quarter. The pattern resembles that of 2008, although the reversal
has not been as drastic. Nonetheless, average price levels of most commodities for 2011
remained well above those in 2010, by between 20 and 30 per cent. The reversals since
mid-2011 have been driven by four key factors: a weaker global demand for commodi-
ties resulting from bleaker prospects for the world economy, positive supply shocks in a
number of markets, a sell-off in markets for financial commodity derivatives that occurred
in concert with the downturn in global equity markets, and an appreciation of the United
States dollar. In the outlook, the prices of most primary commodities are expected to mod-
erate by about 10 per cent in both 2012 and 2013, consistent with the forecast of weaker
global economic growth. It is to be expected, however, that commodity price volatility will
continue to remain high.


Brent oil prices averaged $111 per barrel (pb) in the first half of 2011, compared
with an average of $79 for 2010 as a whole (figure I.7). The surge was mainly driven by
the political unrest in North Africa and Western Asia, which caused disruptions in oil
production, especially in Libya. However, oil prices dropped sharply in the third quarter
of 2011 amidst weakening global demand, the anticipated resumption of oil production in
Libya as well as a rebound of the exchange rate of the United States dollar.


In the outlook for 2012, demand for oil is expected to weaken because of
slower economic growth in developed countries. Yet, total demand is expected to remain
sustained because of the increased energy needs of developing countries, as well as the
restocking of oil inventories. Oil production is expected to resume progressively in Libya,
while Saudi Arabia may keep its production at the current level. However, the continued
geopolitical instability in North Africa and Western Asia is likely to keep the risk premium
on oil prices elevated. All things considered, the Brent oil price is expected to decline
by 6 per cent, to $100 pb, in the baseline forecast for 2012 and to continue to fluctuate
around that level in 2013. Nonetheless, price uncertainty and volatility will remain high
because of, among other things, the influence of financial factors. These include, in par-
ticular, fluctuations in the value of the United States dollar and unpredictable trends in
financial derivatives’ trading in commodity markets.


After sliding considerably in the first half of 2010, world food prices have risen
sharply, peaking around February 2011 (figure I.7). Despite subsequent falls, prices remain
comparatively high. The average price of cereals during the first nine months of 2011 was


Developing countries
added more than $1 trillion
to their reserve holdings


Commodity prices have
dropped after a strong
increase in early 2011


Food prices have been
volatile but remain high




16 World Economic Situation and Prospects 2012


about 40 per cent higher than that recorded over the same period of 2010. Despite similar
swings, meat, vegetable oils and sugar prices have also been on the rise. The impact on
food-dependent developing countries has been considerable, but variable. A famine caused
by prolonged droughts was declared in the Horn of Africa, but other countries in Africa
enjoyed good harvests of maize and sorghum. Generally speaking, however, higher food
prices have been an important factor in the high inflation of many developing countries,
or a cause of additional fiscal burdens where the impact was mitigated by food subsidies.


In the outlook, food prices may moderate somewhat with the global down-
turn and expected good harvests for a number of key crops (including wheat). Yet, prices
are likely to remain volatile, as food markets remain tight and any adverse supply shock
could induce strong price effects. Continued uncertainty in financial markets can also be
expected to exacerbate commodity price volatility.


Moderating world trade growth


World trade continued to recover in 2011, albeit at a much slower pace than in 2010. After
a strong rebound of more than 14 per cent in 2010, the volume of world exports in goods
decelerated visibly, to 7 per cent, in 2011 (figure I.8). The level of total world exports had
fully recovered to its pre-crisis peak by the end of 2010, but it is estimated to be still below
the long-term trend level by the end of 2011. As has been the case with the recovery of
WGP, developing countries, particularly Asian economies with large shares in the trade of
manufactured goods, led the recovery. While the level of trade in volume terms has already
far surpassed the pre-crisis peak for developing countries as a group, the trade volume for


Figure I.7
International oil and food prices, January 2000-October 2011


Br
en


t o
il


(U
S


do
lla


rs
p


er
b


ar
re


l)


Fo
od


p
ric


e
in


de
x,


2
00


0=
10


0


Ju
l-2


00
0


Ja
n-


20
00


Ja
n-


20
01


Ju
l-2


00
1


Ja
n-


20
02


Ju
l-2


00
2


Ja
n-


20
03


Ju
l-2


00
3


Ja
n-


20
04


Ju
l-2


00
4


Ja
n-


20
05


Ju
l-2


00
5


Ja
n-


20
06


Ju
l-2


00
6


Ja
n-


20
07


Ju
l-2


00
7


Ja
n-


20
08


Ju
l-2


00
8


Ja
n-


20
09


Ju
l-2


00
9


Ja
n-


20
10


Ju
l-2


01
0


Ja
n-


20
11


Ju
l-2


01
1


Brent oil


Food price index


0


20


40


60


80


100


120


140


160


50


100


150


200


250


300


Source: UN/DESA, based
on data from UNCTAD and
IMF, International Financial


Statistics database.




17Global economic outlook


developed economies has yet to recover fully from the global crisis. Commodity-exporting
developing countries experienced a strong recovery in the value of their exports in the first
half of 2011, owing to the upturn in commodity prices, but saw little growth of export
volumes. Some of the value gains were lost again in the second half of the year with the
downturn in key commodity prices.


In the outlook, the volume growth of world trade is expected to moderate to
about 5.0 per  cent in 2012-2013. The dichotomy between a robust growth in trade in
emerging economies and a weak one in developed economies will continue.


Uncertainties and risks


Risks of another global recession


Failure of policymakers, especially those in Europe and the United States, to address the
jobs crisis and prevent sovereign debt distress and financial sector fragility from escalating,
poses the most acute risk for the global economy in the outlook for 2012-2013. A renewed
global recession is just around the corner. The developed economies are on the brink of a
downward spiral enacted by four weaknesses that mutually reinforce each other: sovereign
debt distress, fragile banking sectors, weak aggregate demand (associated with high unem-
ployment and fiscal austerity measures) and policy paralysis caused by political gridlock
and institutional deficiencies. All of these weaknesses are already present, but a further
worsening of one of them could set off a vicious circle leading to severe financial turmoil
and an economic downturn. This would also seriously affect emerging markets and other
developing countries through trade and financial channels.


Policy failure poses the
most acute risk for the
global economy


Figure I.8
World merchandise exports, by volume, January 2006-August 2011


Ja
n-


20
06


Ju
l-2


00
6


Ja
n-


20
07


Ju
l-2


00
7


Ja
n-


20
08


Ju
l-2


00
8


Ja
n-


20
09


Ju
l-2


00
9


Ja
n-


20
10


Ju
l-2


01
0


Ja
n-


20
11


Ju
l-2


01
1


Index: January 2006=100


80


90


100


110


120


130


140


150


World
Developed economies
Emerging economies


Source: CPB Netherlands
Bureau for Economic Policy
Analysis, rebased by
UN/DESA.




18 World Economic Situation and Prospects 2012


The baseline forecast assumes that the set of additional measures agreed upon
by the EU in late 2011 will suffice to contain Greece’s debt crisis. The measures include
a 50 per cent reduction of Greece’s sovereign debt, steps to recapitalize European banks
and deeper fiscal cuts in Greece. The baseline assumes this would help engender an orderly
workout of the sovereign debt crisis in the euro area and prevent the Greek default from
spreading to other economies and leading to a major collapse of banks. For the United
States, the baseline assumes that the Government will put in place a policy package that
would provide some minor stimulus in the short run, while cutting Government spend-
ing and increasing taxes over the medium run. The baseline further subsumes the policy
commitments made by other Group of Twenty (G20) members at the Cannes Summit
in France, held on 3 and 4 November 2011. These reaffirm—by and large—existing
Government plans, with the main emphasis on moving towards further fiscal austerity
while sustaining accommodative monetary policies in most developed countries; and
with continued focus on price stability through monetary tightening in major developing
economies and those countries who are running large current-account surpluses enacting
fiscal policies that promote more domestic-led growth.


The presumption of the baseline scenario is that the combination of these poli-
cies will allow developed economies to “muddle through” during 2012, but will be insuffi-
cient to catapult a robust economic recovery. The risk is high, however, that these relatively
benign baseline assumptions will prove to be overly optimistic. It is quite possible that the
additional measures planned in Europe will not be effective enough to resolve the sover-
eign debt crisis in the region, leading to a disorderly and contagious default in a number of
countries which will wreak havoc in the economies of the region and beyond. The efforts
to solve the sovereign debt crisis in Europe failed to quell the unease in financial markets
during November of 2011, and fresh warning signs of further problems emerged as Italy’s
cost of borrowing jumped to its highest rate since the country adopted the euro. Another
sign of increasing financial distress was a jump in the Euribor-OIS, Europe’s interbank
lending rate, from 20 to 100 basis points—not as high as at the onset of the 2008 global
financial crisis, but high enough to cause concern. A large number of banks in the euro
area already stand to suffer significant losses, but contagion of the sovereign debt crisis to
economies as large as Italy would no doubt overstretch the funds available in the European
Financial Stability Facility (EFSF), put many banks on the verge of bankruptcy and trig-
ger a worldwide credit crunch and financial market crash in a scenario reminiscent of the
September 2008 collapse of Lehman Brothers Holdings Inc. Such a financial meltdown
would no doubt lead to a deep recession, not only in those economies under sovereign debt
distress, but also in all other major economies in the euro area, possibly with the intensity
of the downturn seen in late 2008 and early 2009.


The political wrangling over the budget in the United States may also worsen
and could harm economic growth if it leads to severe fiscal austerity with immediate
effect. This would push up unemployment to new highs, further depress the already much-
shaken confidence of households and businesses, and exacerbate the beleaguered housing
sector, leading to more foreclosures which, in turn, would put the United States banking
sector at risk again. Consequently, the United States economy could well fall into another
recession. The United States Federal Reserve might respond by adopting more aggressive
monetary measures, for example, through another round of quantitative easing; but in a
depressed economy with highly risk averse agents, this would likely be even less effective in
terms of boosting economic growth than the measures taken in previous years.


Inability to address
sovereign debt problems


in the euro area and the
United States could trigger


another global recession




19Global economic outlook


A recession in either Europe or the United States alone may not be enough to
induce a global recession, but a collapse of both economies most likely would. Table I.2
shows the possible implications of a more pessimistic scenario of this kind. GDP of the EU
would decline by 1.6 per cent and that of the United States by 0.8 per cent in 2012. This
would constitute about one third of the downturn experienced during 2009. The scenario
assumes that financial conditions would not escalate into a full-blown banking crisis with
worldwide repercussions, but it also assumes some overshooting of the impact into the real
economy—as was the case in 2009—allowing for a mild recovery in 2013, albeit with
GDP growth remaining well below the baseline forecast.


Developing economies and the economies in transition would likely take a
significant blow. The impact would vary as their economic and financial linkages to ma-
jor developed economies differ across countries. Asian developing countries, particularly
those in East Asia, would suffer mainly through a drop in their exports to major developed
economies, while those in Africa, Latin America and Western Asia, along with the major
economies in transition, would be affected by declining primary commodity prices. In ad-
dition, all emerging economies would have to cope with large financial shocks, including
a contagious sell-off in their equity markets, reversal of capital inflows and direct financial
losses due to the declining values of the holdings of European and United States sovereign
bonds, which would affect both official reserve holdings and private sector assets.


As a result, GDP growth in developing countries would decelerate from
6.0 per cent in 2011 to 3.8 per cent in 2012, that is, to almost half the pace of growth
(about 7 per  cent per year)  achieved during 2003-2007 and about 3 percentage points
below the long-term growth trend. This growth deceleration is not quite as big as in 2009
(when the pace of developing country growth dropped by almost 4.5 percentage points),
yet various regions would suffer negative per capita income growth, likely causing renewed
setbacks in poverty reduction and in achieving the other Millennium Development Goals
(MDGs).8 Growth of WGP would decelerate to 0.5 per cent in 2012, implying a downturn
in average per capita income for the world.


Uncertainties associated with the global imbalances
and heightened exchange-rate volatility


The large and persistent external imbalances in the global economy that have developed
over the past decade remain a point of concern for policymakers. Reducing these imbal-
ances has been the major focus of consultations among G20 Finance Ministers under the
G20 Framework for Strong, Sustainable and Balanced Growth and the related Mutual
Assessment Process (MAP) during 2011. The imbalances have declined during the current
economic downturn, but there is concern that in the absence of corrective actions, they
will rise again as the world economy recovers. The Cannes Action Plan for Growth and
Jobs,9 adopted by the G20 leaders at the Cannes Summit on 4 November 2011 includes
some concrete policy commitments towards such corrective action.


In practice, after a substantial narrowing during the Great Recession, the exter-
nal imbalances of the major economies stabilized at about half of their pre-crisis peak levels


8 For an assessment of the impact of economic downturns suffered during the global crisis of 2008
and 2009 on MDG achievement, see World Economic Situation and Prospects 2011, op. cit., box I.3,
pp. 14-15.


9 Available from http://www.g20.org/Documents2011/11/Cannes20Action20plan20420November
202011.pdf.


Developing countries
would be hit hard


The global imbalances
have stabilized at
reduced levels…




20 World Economic Situation and Prospects 2012


Table I.2
A downside scenario for the world economya


GDP growth rate (percentage)


2011 2012 2013


Deviation from
baseline forecast


2012 2013


World 2.8 0.5 2.2 -2.1 -1.0


Developed economies 1.3 -0.9 1.1 -2.1 -0.8
United States of America 1.7 -0.8 1.1 -2.3 -0.9
Japan -0.5 0.5 1.2 -1.5 -0.8
European Union 1.6 -1.6 1.0 -2.3 -0.6


EU-15 1.5 -1.8 0.9 -2.3 -0.6
New EU members 2.9 1.1 2.6 -1.5 -0.5
Euro area 1.5 -2.0 0.6 -2.4 -0.7


Other European countries 1.0 -0.1 1.1 -1.2 -0.5
Other developed countries 1.4 0.2 1.7 -2.0 -0.7


Economies in transition 4.1 -2.0 3.3 -5.9 -0.9
South-Eastern Europe 1.7 -2.8 2.7 -5.1 -0.5
Commonwealth of Independent
States and Georgia 4.3 -2.0 3.3 -6.0 -0.9


Russian Federation 4.0 -3.6 3.0 -7.5 -1.0
Developing economies 6.0 3.8 4.5 -1.7 -1.4


Africa 2.7 3.3 3.7 -1.7 -1.5
North Africa -0.5 4.7 4.6 0.0 -0.9
Sub-Saharan Africa 4.4 2.6 3.2 -2.6 -1.8


Nigeria 6.3 4.2 5.2 -2.6 -1.8
South Africa 3.1 0.0 1.7 -3.7 -1.8
Others 4.8 4.0 3.5 -1.8 -1.8


East and South Asia 7.1 5.6 5.7 -1.2 -1.2
East Asia 7.2 5.6 5.7 -1.3 -1.2


China 9.3 7.8 7.6 -0.9 -0.9
South Asia 6.5 5.7 5.8 -1.0 -1.1


India 7.6 6.7 6.9 -1.0 -1.0
Western Asia 6.6 1.1 2.5 -2.7 -1.8
Latin America and the Caribbean 4.3 0.8 2.4 -2.5 -1.8


South America 4.6 1.2 2.7 -2.4 -1.8
Brazil 3.7 0.3 2.0 -2.4 -1.8


Mexico and Central America 3.8 -0.4 1.8 -3.1 -1.8
Mexico 3.8 -0.6 1.8 -3.1 -1.8


Caribbean 3.4 3.8 2.6 0.3 -1.7
By level of development


High-income countries 1.6 -0.7 1.2 -2.1 -0.8
Upper middle income countries 6.1 3.2 4.7 -2.3 -1.2
Lower middle income countries 5.9 5.2 5.3 -1.2 -1.3
Low-income countries 5.7 6.0 4.2 0.0 -1.7
Least developed countries 4.9 5.4 4.0 -0.6 -1.8


Source: UN/DESA.


a See section on “Risks and uncertainties” for assumptions for this scenario.




21Global economic outlook


(relative to GDP) during 2010-2011 (figure I.9). The United States remained the largest defi-
cit economy, with an estimated external deficit of about $450 billion (3 per cent of GDP) in
2011, but the deficit has come down substantially from the peak of $800 billion (6 per cent
of GDP) registered in 2006. The external surpluses in China, Germany, Japan and a group
of fuel-exporting countries, which form the counterpart to the United States deficit, have
narrowed, albeit to varying degrees. China, for instance, registered a surplus of about $250
billion (less than 4 per cent of GDP) in 2011, dropping from a high of 10 per cent of GDP
in 2007. Japan is estimated to have registered a surplus of 2.5 per cent of GDP in 2011, a
reduction of one percentage point of GDP compared with the level in 2010 and about half
the size of the peak level reached in 2007. While Germany’s surplus remained at about
5 per cent of GDP in 2011, the current account for the euro area as a whole was virtually
in balance. Large surpluses, relative to GDP, were still found in oil-exporting countries,
reaching 20 per cent of GDP or more in some of the oil-exporting countries in Western Asia.


At issue is whether the adjustment of the imbalances in major economies has
been mainly cyclical or structural. In the United States, some of the corresponding ad-
justment in the domestic saving-investment gap seems to be structural. For example, the
household saving rate has increased from about 2 per cent of disposable household income
before the financial crisis to about 5 per cent in the past few years. Despite a decline in
recent months, it is likely that the average saving rate will stay at this level in the coming
years, given the changes that have taken place in house financing and the banking sector
after the financial crisis. On the other hand, the significant decline in the business invest-
ment rate and the surge in the Government deficit in the aftermath of the financial crisis are
more likely to be cyclical. Business investment has been recovering slowly, while the budget
deficit is expected to decrease somewhat. As a result, in the baseline scenario, the external
deficit of the United States may stabilize at about 3 per cent of GDP in the medium run.


…yet, no benign
rebalancing has
taken place


Figure I.9
Global imbalances, 1996-2013


Current-account balances as a percentage of world gross product


-3


-2


-1


0


1


2


3


19
96


19
97


19
98


19
99


20
00


20
01


20
02


20
03


20
04


20
05


20
06


20
07


20
08


20
09


20
10


20
11


20
12


20
13


China


East Asia, excluding China


Germany and Japan


Oil exporters


United States


Rest of the world


European Union,
excluding Germany


Source: IMF, World Economic
Outlook database, September
2011.




22 World Economic Situation and Prospects 2012


With regard to the surplus countries, the decline in the external surplus of China
has also been driven in part by structural change. China’s exchange-rate policy has become
more flexible, with the renminbi appreciating gradually but steadily vis-à-vis the United
States dollar over the past year.10 Meanwhile, the Government has scaled up measures
to boost household consumption, aligning the goal of reducing China’s external surplus
with that of rebalancing the structure of the economy towards greater reliance on domestic
demand. However, the process of rebalancing can be only gradual over the medium to long
run so as to prevent it from being disruptive. In Japan, a continued appreciation of the yen
has contained its external surplus. In Germany, room remains for policies to stimulate more
domestic demand so as to further narrow its external surplus. The surpluses in oil-exporting
countries are of a quite different nature from those in other economies, as these countries
need to share the wealth generated by the endowment of oil with future generations via a
continued accumulation of the surplus into the foreseeable future.


The policy commitments made at the Cannes G20 Summit promise to gently
move things in the same direction, but with much of the narrowing in the short run
coming from cyclical factors, including slower aggregate demand growth and moderating
commodity prices. Hence, at projected baseline trends, the global imbalances are not ex-
pected to widen by a significant margin in the next two years. Should the global economy
fall into another recession, the imbalances would narrow further in a deflationary manner.


Unsustainably large imbalances must be addressed, but at their present level,
the global imbalances should not be a primary reason for concern. There are two other re-
lated concerns, however. The first is that the global rebalancing agenda should not develop
at the expense of growth; rather, it should promote growth and employment generation as
this will also be key to overcoming public debt woes. While the rebalancing as proposed in
the Cannes Action Plan is said to be aligned with a strategy for “growth and jobs”, most of
the concrete policy actions are already contained in existing Government plans, which—
as shown in the outcome of the baseline scenario—add up to only anaemic growth at best,
and thus to a further cyclical, rather than structural, adjustment of the global imbalances.


The second related problem is the continued build-up of vast external liability
positions of deficit countries which have similarly large external asset positions of the sur-
plus countries as a counterpart. In a context of enhanced uncertainty in financial markets,
these accumulated net investment positions are part of a larger topic related to enhanced
exchange-rate instability. The net external liability position of the major reserve currency
country, the United States, stands at about $2.5 trillion (17 per cent of GDP), but is down
from its peak of $3.3 trillion (23 per cent of GDP) in 2008. Foreign holdings of United
States Government debt dominate the composition of external liabilities, estimated at over
$22 trillion, while United States foreign asset holdings mainly consist of private equities.
Mounting external liabilities by the United States, associated in part with increasing fiscal
deficits, have in fact been a major factor in the downward pressure on the United States
dollar against other major currencies since 2002, although there have been large fluctua-
tions around the trend. Confidence in the dollar is subject to volatility as perceptions of
the sustainability of the United States liability position can easily shift along with changes
in equity prices in global markets and the credibility of fiscal policy, both of which have
been under varying (but heavy) pressure during 2011. The political wrangling over the
debt ceiling in the United States has damaged market confidence and triggered a sell-off
in equity markets worldwide.


10 The renminbi has appreciated by about 30 per cent against the dollar since China abandoned the
dollar peg in 2005.


There are concerns that
the present process of


global rebalancing will be
addressed at the expense of


job growth and will
not help stabilize


exchange rates




23Global economic outlook


In the light of events and problems with policy credibility elsewhere, this situa-
tion did not lead to univocal dollar depreciation. In the euro area, the lack of policy direc-
tion and coherence in dealing with sovereign debt problems put downward pressure on the
euro. On a slightly different tack, but essentially in the same vein, the United Kingdom
of Great Britain and Northern Ireland suffered its own version of a credibility crisis with
the continued failure of its central bank to achieve its inflation target. Japan’s earthquake,
in turn, triggered a repatriation of private asset holdings for investment in reconstruction
works, putting upward pressure on the yen. The volatility in global capital flows (discussed
above) induced further instability into currency markets.


Indeed, exchange rates among major international reserve currencies, namely,
the United States dollar, euro and Japanese yen, continued to display large fluctuations dur-
ing 2011 (figure I.10). Developing countries also witnessed greater exchange-rate volatility.
The dollar continued its downward trend against other major currencies in the first half of
the year, but rebounded notably against the euro in the third quarter when concerns about
the sovereign debt crisis in the euro area intensified, and devalued again later in the year
after some agreements were reached in Europe on scaling up measures to deal with the
debt crisis. Over the year as a whole, the Japanese yen appreciated against both the dollar
and the euro, despite interventions by the Bank of Japan to curb the appreciation. Among
other currencies in developed economies, the Swiss franc appreciated the most in the first
half of the year, as a result of flight-to-safety effects, leading to the decision of the Swiss
authorities not to tolerate any strengthening of the exchange rate below SwF 1.20 per euro.


Strong capital inflows attracted by robust economic performance put upward
pressure on the currencies of most emerging economies over the past two years. This trend
went into a tailspin with the heightened turbulence in global financial markets starting in
mid-2011 (figure I.11). For instance, Brazil’s real fell 16 per cent against the United States


Figure I.10
Exchange rates of major reserve currencies vis-à-vis the
United States dollar, 2 January 2008-10 November 2011


Ja
n-


20
08


Ju
l-2


00
8


Ja
n-


20
09


Ju
l-2


00
9


Ja
n-


20
10


Ju
l-2


01
0


Ja
n-


20
11


Ju
l-2


01
1


Index: 2 January 2008=100


80


90


100


110


120


130


140


150


160


Euro


Japanese yen


Swiss franc


Source: UN/DESA, based on
data from JPMorgan Chase.




24 World Economic Situation and Prospects 2012


dollar in the third quarter, while the Russian rouble and the South African rand depreci-
ated by 15 and 19 per cent, respectively.


However, since early 2009, the underlying trend has been for the currencies of
most emerging economies to appreciate against the dollar. In the cases of Brazil, Indonesia,
the Republic of Korea, South Africa and Thailand, for instance, this trend reflects in part
a recovery from the depreciation that occurred at the apex of the global financial crisis in
2008. The Chinese renminbi, in contrast, has slowly but gradually appreciated against the
dollar ever since 2005, as part of a deliberate exchange-rate policy.


Currency appreciation poses a challenge for many developing countries and
some European countries by reducing the competitiveness of their respective export sec-
tors. While domestic demand has been taking on a more significant role as a driver of
growth on the back of rising incomes in many emerging economies, a forced and pre-
mature shift away from an export-led growth model owing to pronounced and sustained
currency appreciation might create significant dislocations, especially in labour markets in
the form of a spike in unemployment. Stronger currencies can help on the import side to
reduce inflation, but this advantage could be more than offset by the social cost of higher
unemployment rates.


An additional problem tied to sustained exchange-rate trends lies in an in-
creased probability of sudden trend reversals, as occurred in the third quarter of 2011.
Contrary to many fundamental factors, virtual panic about the debt problems in Europe
and the possibility of a global recession set off a flight to the dollar, which has again
confirmed its role as the safe-haven currency of last resort in situations of extreme market
stress. Emerging market currencies that had experienced sustained appreciation pressure
suffered a precipitous fall in their values in a very short time span, illustrating the unpre-
dictable nature of developments in currency markets.


Exchange-rate volatility is
posing policy challenges to


developing countries


Figure I.11
Exchange rates of selected currencies vis-à-vis the
United States dollar, 2 January 2008-10 November 2011


Ja
n-


20
08


Ju
l-2


00
8


Ja
n-


20
09


Ju
l-2


00
9


Ja
n-


20
10


Ju
l-2


01
0


Ja
n-


20
11


Ju
l-2


01
1


Index: 2 January 2008=100


60


70


80


90


100


110


120


Source: UN/DESA, based on
data from JPMorgan Chase.


Brazilian real


Chinese yuan


Korean won


Russian rouble


South African rand




25Global economic outlook


The increased currency volatility has injected an additional element of un-
certainty into currency markets and created significant feed-through effects into the real
economy. As companies face greater difficulties in pricing their products and anticipating
their costs, business planning becomes more uncertain, underpinning a generally more
cautious approach that also includes an even greater reluctance to hire new employees.
Such increased volatility would also be likely to spill over into more price instability in
commodity markets given the high degree of financialization of those markets and the
impact of exchange rates (especially the value of the dollar)  on commodity prices (see
chap. II). Uncertainty and volatility in currency markets can be expected to remain high
during 2012-2013.


Policy challenges
Overcoming the risks outlined above and reinvigorating the global recovery in a bal-
anced and sustainable manner poses enormous policy challenges. Most developed
economies—Europe and the United States, as well as Japan—find themselves in a dif-
ficult economic bind. There are no simple solutions that would quickly win political
support. Their economies have been growing too slowly for too long, making it more
and more difficult to pay for the increasing costs of health care and pensions for ageing
populations. The United States and Europe face the risk of their problems feeding into
each other. Recent economic stagnation may make voters and policymakers unwilling
to opt for hard choices, and the political paralysis might, in turn, worsen the economy
by creating new financial turmoil. In the short term, this so-called no growth or low
growth trap11 takes the form of resistance to emergency measures—for instance, the
opposition in some European countries that are perceived to be more fiscally prudent, to
bail out what are seen to be more profligate countries; this may force the latter towards
more fiscal austerity and induce lower growth and social opposition. Over the longer
term, the trap is created by resistance to the higher taxes and reduced benefits deemed
necessary to return countries to financial stability. The resistance is understandable given
the weakness of income growth over the past decade, but is unlikely to hold up against
the pressures for adjustment.


Developing countries find themselves in a different bind. On the one hand,
they need to protect themselves against volatile commodity prices and external financing
conditions, in some cases through more restrictive macroeconomic policies and reserve
accumulation, thereby contributing to the lack of global aggregate demand. On the other
hand, they need to step up investment to sustain higher growth and reorient their econo-
mies towards faster poverty reduction and more sustainable production. In particular,
they need to be mindful that the quality of growth should not be such that it deprives
important groups of workers of decent jobs—not just the working poor but also the youth
and, in some cases, the better educated amongst them. Feelings of the lack of a meaningful
future have become a source of social tensions, most visibly in the Arab world.


G20 leaders recognized these concerns to some extent in the Cannes Action
Plan and announced a global strategy for growth and jobs. The plan is to address short-
term vulnerabilities, while strengthening the medium-term foundations for growth. The
mix of concrete measures and policy commitments for the short run are by and large


11 The trap was so named in a recent article by Benjamin F. Friedman, “The no-growth trap”, National
Interest, No. 116 (November-December 2011), available from http://nationalinterest.org/article/
the-no-growth-trap-6050.


Developed countries are
in a no-growth trap


Developing countries face
different policy dilemmas




26 World Economic Situation and Prospects 2012


consistent with what is already subsumed in the baseline forecast for 2012 and 2013.
It refers, if only in vague terms, to the possible implementation of some elements of the
American Jobs Act proposed by the Government of the United States as well as its com-
mitment to medium-term fiscal consolidation. It further includes Japan’s reconstruction
efforts (although these are assumed to be largely tax-financed) and the coming into effect
of the “comprehensive” package agreed to by the Governments of the euro area for an
orderly workout of the sovereign debt crises in the area.12 It also includes the commit-
ment of ensuring monetary policies that support economic recovery but maintain price
stability in the medium run, and commitments of countries with relatively strong public
finances (such as Australia, Brazil, Canada, China, Germany, Indonesia and the Republic
of Korea) to let automatic stabilizers work and, in the face of worsening world economic
conditions, take discretionary measures to support domestic demand.


In essence, however, the Cannes Action Plan does not promise to add much
more to what was already contained in Government plans enacted during 2011, when
macroeconomic policies in most developed economies were already characterized by a
combination of an extremely loose monetary policy stance and shifts towards fiscal auster-
ity. The central banks of the euro area, Japan and the United States all maintained their
policy interest rates at low levels and expanded the size of their balance sheets to inject
more liquidity into the economy through various unconventional monetary measures. The
fiscal policy stance in most developed economies was tightened through austerity meas-
ures, inducing a drain on GDP growth. In contrast, macroeconomic policy varied greatly
across developing countries. Monetary tightening in efforts to stem inflation was perhaps
the more common feature among major emerging economies. The Cannes Action Plan
does not promise to do much more in the short run (apart for the elements highlighted
above), and as the baseline projections show, would fall short of reinvigorating the world
economy and bringing down unemployment. Most hopes seem to be set on strengthening
the medium-term foundations for growth, but the related six-point plan13 could quickly
“fall behind the curve” if the downside risks to the outlook materialize. In fact, during
November of 2011 it became clear that markets have been little impressed by either the
G20 Action Plan or the euro area’s package for handling the sovereign debt crisis and
containing contagion to large economies. Financial turmoil continued amidst increased
political uncertainty with the Government leaders of both Greece and Italy being forced
to step down over the sovereign debt crisis. Italy’s borrowing costs were pushed to record
highs and the world’s seventh-largest economy edged closer towards the brink of default.


12 This includes the agreement to (i) flexibilize and enhance the EFSF instruments to a firepower of
up to €1 trillion; (ii) significantly strengthen economic and fiscal surveillance and governance of
the euro area; (iii) ensure that euro area member States experiencing tensions in sovereign debt
markets make stronger efforts in terms of fiscal consolidation and structural reforms; (iv) ensure the
sustainability of the Greek public debt through a rigorous adjustment programme and a voluntary
nominal discount of 50 per cent on Greek debt held by private investors; and (v) raise confidence
in the banking sector, including by facilitating access to term funding, where appropriate, and
temporarily increasing the capital position of large banks to 9 per cent of Core Tier 1 capital after
accounting for sovereign exposures by the end of June 2012, while maintaining the credit flow to
the real economy and ensuring that these plans do not lead to excessive deleveraging.


13 The six-point plan to strengthen the medium-term foundations for growth agreed to by the G20
leaders in Cannes would consist of (1) commitments to fiscal consolidation; (2) commitments to
boost private demand in countries with current-account surpluses, and, where appropriate, to
rotate demand from the public to the private sector in countries with current-account deficits;
(3)  structural reforms to raise growth and enhance job creation across G20 member countries;
(4) reforms to strengthen national/global financial systems; (5) measures to promote open trade
and investment, rejecting protectionism in all its forms; and (6) actions to promote development.


Current policy intentions
of the G20 at best provide


for a scenario of “muddling
through”




27Global economic outlook


This has increased the likelihood of the pessimistic scenario’s materializing, with the con-
sequences outlined in the section above.


In order to make the global economic recovery more robust, balanced and
sustainable, the policy directions discussed in World Economic Situation and Prospects 2011
still apply, but they have taken on greater urgency. There are important commonalities
with the Cannes Action Plan, but actions will need to be much more pervasive and bet-
ter coordinated, especially in terms of short-term stimulus, sovereign debt resolution and
orientation towards job creation, while medium-term plans should focus more strongly
on sustainable growth and development and accelerated reforms of financial regulatory
systems and the international monetary system.


Stronger macroeconomic stimulus…


As a first step, developed countries, in particular, should be cautious not to embark prema-
turely on fiscal austerity policies given the still fragile state of the recovery and prevailing
high levels of unemployment. While high public indebtedness is a concern and has contin-
ued to increase in most developed economies, in a number of cases (including the United
States) to over 100 per cent of GDP (figure I.12), many developed country Governments
still have plenty of fiscal space left for additional stimulus measures. A high debt-to-GDP
ratio does not necessarily render public indebtedness unsustainable. Risk premiums on
sovereign debt constitute one indication. The spreads on interest rates on public borrowing
have increased significantly for Greece and a few other European economies, but they
remain low (and have even decreased further) for Germany, Japan, the United States and
other developed countries (figure I.13).


Contrary to prevailing political pressures, the countries with fiscal space
should pursue a “J-curve” approach towards fiscal adjustment (see box I.3). With high
unemployment and weak private demand, a premature fiscal tightening may derail the
fragile recovery and lead to further worsening, rather than improvement, of fiscal bal-
ances. Instead, the Governments of economies with low financing costs in capital markets
should allow automatic stabilizers to operate and sustain or enhance deficit-financed fiscal
stimulus in the short run. The additional stimulus should continue up to the point where
sufficient GDP and job growth have taken effect and unemployment rates have fallen to
levels at which more sustained private demand growth may be expected. In this approach,
Governments would allow the fiscal deficit to widen further initially, perhaps for another
two or three years, until more robust GDP and employment growth boosts Government
revenues, thus facilitating swifter and less harmful budget deficit reduction.


As explained further in box I.3, a J-curve process of fiscal consolidation is quite
feasible provided one dollar of additional short-term stimulus translates into more than
one dollar of additional aggregate demand, which is typically the case when the economy
is in a downturn and even more so if the stimulus is oriented towards infrastructure and
direct job creation (as argued in more detail below). A second necessary condition is that
the cost of Government borrowing in capital markets (the nominal interest rate on long-
term bonds) be less than the rate of potential nominal GDP growth so as to ensure a be-
nign debt-GDP growth dynamic. This condition is currently satisfied in Germany, Japan
and the United States, and several other developed countries not mired in sovereign debt
distress. Given the current high degree of uncertainty in capital markets, the additional


The only way to overcome
present economic
woes is through much
more pervasive policy
coordination


More short-term fiscal
stimulus is needed, not less


A J-curve process of fiscal
consolidation is feasible




28 World Economic Situation and Prospects 2012


Source: Data from IMF, Fiscal Monitor: Addressing Fiscal Challenges to Reduce Economic Risks (Washington, D.C.,
September 2011).


Figure I.12
Growing public debt burdens
(percentage of GDP)


A. Developed and emerging market economies, 2006-2013


0


20


40


60


80


100


120


2006 2007 2008 2009 2010 2011 2012 2013


Developed economies


Emerging economies


B. Selected developed countries, 2007 and 2011


0


50


100


150


200


250


Au
st


ra
lia


Be
lg


iu
m


Ca
na


da


Fr
an


ce


G
er


m
an


y


G
re


ec
e


Ire
la


nd Ita
ly


Ja
pa


n


Po
rt


ug
al


Sp
ai


n


U
ni


te
d


Ki
ng


do
m


U
ni


te
d


St
at


es


D
ev


el
op


ed
ec


on
om


ie
s


2007
2011


C. Selected emerging market economies, 2007 and 2011


Ar
ge


nt
in


a


Br
az


il


Ch
in


a


In
di


a


In
do


ne
sia


M
ex


ic
o


N
ig


er
ia


Pa
ki


st
an


Ph
ili


pp
in


es


Ru
ss


ia
n


Fe
de


ra
tio


n


So
ut


h
Af


ric
a


Tu
rk


ey


Em
er


gi
ng


ec
on


om
ie


s
2007
2011


0


20


40


60


80


100


120




29Global economic outlook


Source: JPMorgan Chase.


Figure I.13
Yields on two-year sovereign bonds in developed countries,
January 2010-November 2011


Ja
n-


20
10


M
ar


-2
01


0


M
ay


-2
01


0


Ju
l-2


01
0


Se
p-


20
10


N
ov


-2
01


0


Ja
n-


20
11


M
ar


-2
01


1


M
ay


-2
01


1


Se
p-


20
11


N
ov


-2
01


1


Ju
l-2


01
1


A. Developed countries with low borrowing costs


0.0


0.5


1.0


1.5


2.0


2.5
France
United States
Great Britain


Germany
Netherlands
Japan


Ja
n-


20
10


M
ar


-2
01


0


M
ay


-2
01


0


Ju
l-2


01
0


Se
p


-2
01


0


N
ov


-2
01


0


Ja
n-


20
11


M
ar


-2
01


1


M
ay


-2
01


1


Se
p


-2
01


1


N
ov


-2
01


1


Ju
l-2


01
1


B. Developed countries with high and/or rising borrowing costs


Ireland
Portugal
Belgium


Italy
Spain
Greece (right-hand scale)


0.0


5.0


10.0


15.0


20.0


25.0


0.0


20.0


40.0


60.0


80.0


100.0




30 World Economic Situation and Prospects 2012


A “J-curved” fiscal adjustment?


Three years after the onset of the Great Recession, fiscal policy in most developed economies is fac-
ing a dual challenge: the need for preventing a double-dip recession as the economic recovery falters
and the need for safeguarding the fiscal sustainability in the long run. In a few European economies,
the debt situation has gone beyond the limits of affordable access to refinancing in capital markets.
They seem to have little option left but to frontload austerity measures with or without a deal for an
orderly debt restructuring. Other developed economies, however, for which the cost of public bor-
rowing remains low, have more space to implement a fiscal framework that allows for more stimulus
in the short run to bolster the economic recovery and bring public debt to more sustainable levels
over the long run. The present box postulates a possible “J-curved” trajectory for the fiscal balances
of those developed economies without severe debt distress, and discusses the conditions under
which such a policy approach would constitute a workable option.


In the present-day context of a large fiscal deficit, below-potential growth, elevated unem-
ployment, and continued financial deleveraging, substantial cuts in Government spending and increases
in taxes may be ineffective in reducing the budget deficit. Worse still, along the lines of Keynes’s paradox
of thrift, when both consumers and Governments simultaneously spend less to save more, the result-
ing recession and contraction of gross domestic product (GDP) would again render public debt unsus-
tainable. Even if a double-dip recession is avoided, fiscal austerity may keep economic growth below
potential for a prolonged period, thus keeping up unemployment. In this case, Government revenue
will not recover sufficiently; the large budget deficit will linger and public debt will continue to rise. The
view held by some analysts and policymakers in major economies that lower public deficits and debts
would enhance the confidence of private sector agents, and hence could help restore growth, tends to
hold little ground when unemployment is high and deleveraging firms and banks are highly risk averse.


The J-curve approach brings an alternative perspective. In economies with low financ-
ing costs in capital markets, Governments have policy space to let automatic stabilizers operate
and sustain or enhance deficit-financed fiscal stimulus. It would make sense to use this space up
to the point where sufficient GDP and job growth have taken effect and unemployment rates have
fallen to levels at which more sustained private demand growth may be expected. In this approach,
Governments would allow the fiscal deficit to widen further initially, perhaps for another two or three
years, until more robust GDP and employment growth boosts Government revenues, facilitating
swifter and less harmful budget deficit reduction. At that point, if needed, more structural fiscal
reforms may be put in place to accelerate gradual reduction of the public debt-to-GDP ratio. As
a result, the fiscal balance would evolve in the shape of a J-curve: worsening initially, to improve
strongly thereafter.


The feasibility of achieving such a J-curve depends on a number of economic condi-
tions. One important condition that would need to be satisfied is that the fiscal multiplier in the
economy be greater than 1, meaning that an increase of one dollar in Government spending or tax
cuts generates an increase of more than one dollar in GDP. If the multiplier is smaller than 1, it implies
that an increase in Government spending or a tax cut will be partially offset by reductions in private
consumption or investment. Consequently, as a second-round effect, Government revenue would
not increase sufficiently to cause the budget deficit to fall over time.


Do major developed economies meet this condition? A review of various studies shows
that the estimated value of the fiscal multiplier in the United States over the past three decades has
been in the range of 0.8-1.5, thus leaving some uncertainty as to whether this condition is satis-
fied or not.a Estimates of fiscal multipliers for European economies tend to fall into a similar range.b
However, the estimate of the multiplier in most of these studies is the average value over a time
span that includes both economic booms and recessions.c Indeed, the multiplier is likely to be much
larger during recessions, when there is slack in capacity utilization and when households and busi-
nesses are too risk averse to spend, as is the case at present.d Moreover, the composition of fiscal
stimulus will influence the size of the multiplier. Increases in Government spending on infrastructure
investment, for instance, tend to have larger multipliers than tax credits or direct income transfers,
especially when comparing the cumulative multiplier effects over a number of years.


Box I.3


a Valerie Ramey, “Can
government purchases


stimulate the economy?”
Journal of Economic


Literature, vol. 49, No. 3,
pp. 673-685.


c Jonathan Parker, “On
measuring the effects of


fiscal policy in recessions”,
Journal of Economic


Literature, vol. 49, No. 3,
pp. 703-718.


d For example, Alan
Auerbach and Yuriy


Gordnichenko, in
“Measuring the output


responses to fiscal policy”,
American Economic


Journal: Economic Policy
(forthcoming), estimate


that the multipliers for
the United States range


between 0.0 and 0.5 during
economic expansions,


but are much higher, in
the range of between 1.0
and 1.5, during economic


recessions. Jonas D.
Fisher and Ryan Peters


provide similar estimates
in “Using stock returns


to identify government
spending shocks”, Economic


Journal, vol. 120, No. 544,
pp. 414-436.


b See, for example, Pablo
Burriel and others, “Fiscal


multipliers in the euro area”,
session 3, No. 19 in Fiscal


policy: lessons from the crisis,
papers presented at the
Banca d’Italia workshop


held in Perugia, 25-27
March 2010 (Rome: Banca


d’Italia), available from
http://www.bancaditalia.


it/pubblicazioni/seminari_
convegni/Fiscal_Policy/6_


Fiscal_Policy.pdf.




31Global economic outlook


short-term stimulus could cause interest rates to go up, but Governments can contain this
by (a)  continued commitment to accommodative monetary policies, (b)  more forceful
bank recapitalization measures and tighter financial regulation to address financial sector
fragility and (c) credible and concrete plans aimed at a more structural resolution of fiscal
problems over the medium to long run.


Further strengthening of financial safety nets will also be needed to stem mar-
ket uncertainty and the risk of further debt distress. The establishment of Europe’s tem-
porary funding facilities (the EFSF and the European Financial Stabilisation Mechanism
(EFSM)), the more permanent European Stability Mechanism (ESM) and related measures
have brought some resolve to dealing with Europe’s sovereign debt crisis.14 However, the
continued debt distress and spread of contagion to the larger European economies during
the second half of 2011 suggests these measures have not been bold enough. The firepower
of the financial safety nets is too limited to cope with the sovereign debt problems of coun-
tries like Italy and Spain. Finding ways to significantly enhance the firepower of the ESM
will be as important as it is difficult to achieve. It may prove difficult for economic reasons,
since leveraging resources for the EFSF (and ESM, for that matter) would be akin to seeking
collateralized debt obligations to sub-triple A bonds, and thus may not attract large volun-
tary contributions. It will not be easy for institutional and political reasons either, because it
requires changing the euro area treaty and overcoming opposition from countries not facing
debt distress. It is clear that the euro area needs the help and involvement of other major
economies, the surplus countries amongst them in particular. This would require reaching
a swifter international agreement to enhance International Monetary Fund (IMF) resources


14 In response to the crisis in Greece, the European Council set up a European Financial Stabilisation
Mechanism (EFSM) and a European Financial Stability Facility (EFSF) in 2010. Later, these facilities
were also used to assist Ireland and Portugal. In early 2011, a permanent crisis management
mechanism—the European Stability Mechanism (ESM)—with an effective lending capacity of up
to €440 billion was agreed upon. The ESM is to replace the EFSM and EFSF by mid-2013. In July
2011, euro area Government leaders agreed to broaden the mandate of the ESM with a provision
for precautionary lending, the provision of loans to sovereigns that are not part of a programme
for restoring capital buffers, and the use of the mechanism to purchase sovereign bonds in
secondary markets.


The second necessary condition is that the cost of Government borrowing in capital
markets (the nominal interest rate on long-term bonds) be less than the rate of potential nominal
GDP growth. This will ensure a benign debt-GDP growth dynamic. Currently, in Germany, Japan and
the United States, long-term interest rates on Government bonds are clearly lower than their respec-
tive potential nominal GDP growth rates. It is uncertain, however, whether additional Government
spending and larger budget deficits would push up interest rates significantly, as has occurred in the
European economies that are now facing severe debt distress. A number of complementary actions
could help reduce the uncertainty in capital markets. In the present context, these would include (a) a
continued commitment to accommodative monetary policies and to low interest rates; (b) support
of bank recapitalization and tightening of financial regulation so as to reduce financial fragility and
bank exposure to sovereign debt risk; and (c) the advancement of credible and concrete plans aimed
at a more structural resolution of fiscal problems over the medium to long run.


Last, but not least, the feasibility of a J-curved fiscal adjustment will be highly depend-
ent upon political factors. It will require a broad-based trust of society in support of the Government’s
taking the calculated risk of allowing a further worsening of the fiscal deficit to provide more fiscal
stimulus in the short run while committing to solving the structural debt problems over the medium
to long run.


Box I.3 (cont’d)




32 World Economic Situation and Prospects 2012


to supplement the EFSF, and accepting a more accelerated voice and quota reform of the
IMF (see below). The European Central Bank (ECB) could contribute further if it were
willing to assign itself a greater role as lender of last resort.


Debt workout mechanisms should not be restricted to sovereign debts in
Europe. Many developed countries, the United States in particular, may face a second
round of mortgage crises as so many mortgages are “under water” and problems are likely
to increase with persistent high unemployment and the general weakness in housing mar-
kets. Countries facing these conditions may need to consider facilitating household bridge
loan assistance and mortgage restructuring and “rent-to-start-over” plans in order to ease
the process of household deleveraging and avoid large-scale foreclosures. Without such
measures, the road to recovery may be much harder.


The short-term policy concern for many developing countries will be to prevent
rising and volatile food and commodity prices and exchange-rate instability from under-
mining growth and leading their economies into another boom-bust cycle. These countries
would need to ensure that macroeconomic policies are part of a transparent counter-cyclical
framework that would include the use of fiscal stabilization funds and strengthened macro-
prudential financial and capital-account regulation to mitigate the impact of volatile com-
modity prices and capital inflows. Strengthened social policies would need to offer sufficient
income protection for the poor and vulnerable against higher food and energy prices.


…that is adequately coordinated internationally


The second (and related)  challenge is to ensure that additional short-term stimulus by
economies with fiscal space is coordinated and consistent with benign global rebalanc-
ing. In Europe, instead of the present asymmetric adjustment through recessionary defla-
tion—which concentrates most of the pain on the countries in debt distress—this would
entail a more symmetrical approach of austerity and structural reforms in the countries
in distress combined with euro area-wide reflation. The subsequent economic recovery
would ease medium-term fiscal consolidation and debt reduction, as mentioned earlier.
The United States would equally need to consider such a sequenced approach. The first
priority should be to boost demand in order to reduce unemployment, especially through
public investment and more direct job creation. This would help households delever and
boost consumption demand through income growth. Infrastructure investment and
other structural measures would underpin strengthened export competitiveness over the
medium run. This would give time for China and other Asian economies to rebalance
towards greater reliance on domestic demand growth, in line with existing Government
plans and the intentions of the Cannes Action Plan for medium-term global rebalancing.


To achieve such benign global rebalancing with accelerated job recovery seems
feasible. It would be growth enhancing and would also bring public debt ratios down
to sustainable proportions over the medium run. Simulations with the United Nations
Global Policy Model—reflecting the key policy directions suggested above and those be-
low regarding coordinated short-term global stimulus, orderly sovereign debt workouts
and structural policies aimed at stronger job creation and sustainable development—show
that this would be a win-win scenario for all economies, as it would significantly en-
hance GDP and employment growth compared with the baseline, while reducing public
debt-to-GDP ratios and requiring limited exchange-rate realignment (see box I.4). WGP
would accelerate to over 4 per cent per year during 2012-2015, especially since developed


Debt workout mechanisms
are needed in both Europe


and the United States


Global rebalancing with
accelerated job recovery


is feasible if concerted
action is taken




33Global economic outlook


economies would be lifted from their anaemic growth, while developing countries would
also reach a higher growth path compared with the baseline situation, where policy co-
ordination is absent. Most importantly, employment rates, especially among developed
countries, would recover to near pre-crisis levels, a situation which would remain elusive
in the baseline forecast. Also, in developing countries, employment growth would be sig-
nificantly higher. By and large, the 64 million jobs’ deficit resulting from the global crisis
of 2008-2009 would have dissipated by 2016 in this scenario. Even given such a perhaps
slow employment recovery, the scenario underscores that providing more fiscal stimulus in
the short run and avoiding premature fiscal austerity is a feasible way of dealing effectively
with the global jobs crisis while at the same time inducing a benign and more sustainable
rebalancing of the global economy.


A coordinated strategy for jobs and growth


A scenario of strengthened international policy coordination aimed at dealing with the jobs crisis
and averting a double-dip recession was simulated using the United Nations Global Policy Model.a
The Model takes on board the key policy directions suggested in the report, including a stronger role
for fiscal policy in the short-term outlook—one that gives priority to employment generation and
greener growth through better-targeted Government spending, private investment incentives and
structural policies. In the policy simulation, there is no premature fiscal austerity overall, and growth
of Government spending is kept positive across major economies and regions. Public spending in-
creases at a rate below gross domestic product (GDP) growth, in such a way that budget deficits and
public debt-to-GDP ratios are gradually reduced over time. At the same time, policies are assumed
to be coordinated to a certain degree with stronger fiscal impulses provided in countries with more
fiscal space, as well as in the surplus economies, so as to help bring about a global rebalancing. The
scenario further assumes that fiscal and monetary policies in developed economies are redesigned in
ways suggested in the text, aimed at putting GDP growth on a path towards reaching levels of (non-
inflationary) potential output, with an initial post-recession acceleration and with employment rates
approaching pre-crisis levels. Furthermore, it is assumed that effective debt workout mechanisms
and financial safety nets are put in place to contain the abnormal rise in interest rates on sovereign
debt, and that the impulses to enhance short-term employment and output growth will restore con-
sumer and investor confidence and normalization of the credit supply.


Emerging and developing countries are also assumed to engage in additional fiscal
stimulus in this policy scenario, but the degree of stimulus has been tailored to the available fiscal
space in each country grouping using the initial level of public indebtedness as a benchmark. Since
greater fiscal space in most cases appears to be closely associated with larger external surpluses
accumulated in the recent past, the simulated pattern of stimulus measures across countries is thus
helping the global rebalancing. Furthermore, it is assumed that developing countries use most of the
stimulus to strengthen investment in infrastructure and sustainable productive capacity in agricul-
ture and energy, and that they gain greater access to developed country markets along with efforts
to diversify their export base. This implicitly assumes that multilateral trade rules and a strengthened
aid-for-trade programme are supportive of these developments. In low-income countries in particu-
lar, the increased public and private investment would lead to larger external deficits in the early years
of the simulation period. The simulation assumes these countries have adequate access to official
development assistance and other external financing to cover those deficits.


Under these assumptions, growth of world gross product would move up to about 4.0
per cent per annum, with both developed and developing economies seeing growth accelerate by
between 1 and 2 percentage points in comparison with the baseline (see figure A). Most importantly,
employment rates, especially among developed countries, would return to near pre-crisis levels, unlike
those in the baseline scenario (figure B). Also, in developing countries, employment growth would be


Box I.4


a Available from http://
www.un.org/en/
development/desa/policy/
un_gpm.shtml.




34 World Economic Situation and Prospects 2012


Box I.4 (cont’d)
Figure A
GDP growth of selected major economies and country groupings, 2009-2016
(percentage)


(i) Europe, Japan and other developed economies


-4


-2


0


2


4


6


8


10


2009 2010 2011 2012 2013 2014 2015 2016


(ii) United States


2009 2010 2011 2012 2013 2014 2015 2016


-4


-2


0


2


4


6


8


10


(iii) Transition and developing economies


2009 2010 2011 2012 2013 2014 2015 2016


-4


-2


0


2


4


6


8


10


China and India


CIS, Western Asia and other developing economies


Baseline


Coordinated strategy
for jobs and growth




35Global economic outlook


Box I.4 (cont’d)
Figure B
Employment rates of selected major economies and country groupings, 2008-2016
(percentage of working-age population)


(i) Europe, Japan and other developed economies


20092008 2010 2011 2012 2013 2014 2015 2016


58


60


62


64


66


68


70


(ii) United States


20092008 2010 2011 2012 2013 2014 2015 2016


58


60


62


64


66


68


70


(iii) Transition and developing economies


20092008 2010 2011 2012 2013 2014 2015 2016


58


60


62


64


66


68


70


China and India


CIS, Western Asia and other developing economies Source: UN/DESA Global
Policy Model (http://www.
un.org/en/development/
desa/policy/un_gpm.shtml).


Baseline


Coordinated strategy
for jobs and growth




36 World Economic Situation and Prospects 2012


Redesigning macroeconomic policies for
jobs growth and sustainable development


The third related challenge will be to redesign fiscal policy—and economic policies more
generally—in order to strengthen its impact on employment and aid in its transition from
a pure demand stimulus to one that promotes structural change for more sustainable eco-
nomic growth. Thus far, stimulus packages in developed countries have mostly focused on
income support measures, with tax-related measures accounting for more than half of the
stimulus provided. In contrast, in many developing countries, such as Argentina, China
and the Republic of Korea, infrastructure investment has tended to make up the larger
share of the stimulus and strengthened supply-side conditions. The optimal mix of sup-
porting demand directly through taxes or income subsidies or indirectly through strength-
ening supply-side conditions, including by investing in infrastructure and new technolo-
gies, may vary across countries. In most contexts, however, direct Government spending
tends to generate stronger employment effects. A prudent policy would be to target public
investments towards alleviating infrastructure bottlenecks that mitigate growth prospects,
and to supplement this policy with fiscal efforts to broaden the tax base. One priority area
would be to expand public investment in renewable clean energy as part of commitments
to reduce greenhouse gas (GHG)  emissions and in infrastructure that provides greater
resilience to the effects of climate change.15 Such a reorientation of stimulus measures has
the potential to provide significantly greater employment effects, as the renewable energy
sector tends to be more labour-intensive than existing, non-renewable energy generation.


The redesigned fiscal strategy would also need to monitor closely the way
in which income growth and productivity gains are shared in society. Recent studies


15 As shown in annex table A.22, GHG emissions in the Annex I countries to the Kyoto Protocol are
projected to decline by about 1 per cent per year during 2011-2013 given the slow recovery in GDP
growth and existing plans for improving energy efficiency and emissions reductions. However, the
pace of the reduction is too slow to meet the agreed targets under the Kyoto Protocol.


Fiscal policies, in tandem
with income and structural


policies, will need to be
reoriented to foster job


creation and green growth


significantly higher. The employment deficit caused by the global crisis of 2008-2009, estimated at 64
million jobs worldwide in 2011, would by and large dissipate by 2016, although, in the present scenario,
would still fall slightly short of the global employment rate seen in 2007. The simulation results show
further that these outcomes are achievable alongside improving fiscal balances and stabilizing public
debt ratios over the medium run (as shown in the appendix table to this chapter), with a gradual decline
thereafter. Government budget balances would quickly shift towards the upward slope of the J-curve
(see box I.3), given the relatively mild, but well-targeted, fiscal impulses assumed in the scenario.


Current-account imbalances would be reduced gradually, in part because surplus coun-
tries are providing greater fiscal stimuli that would trigger stronger domestic private investment and
consumption growth in those countries. With investments in energy efficiency and more sustainable
(and greener) energy supplies, world energy prices would stabilize to lower levels over the medium
run. Food prices would also stabilize as stronger demand is met with more rapidly increasing supply
underpinned by increased investment in sustainable food production. Thus, external surpluses of
major commodity exporting economies would also adjust gradually.


Even with such a perhaps slow employment recovery, this scenario underscores that
providing more fiscal stimulus in the short run and avoiding premature fiscal austerity is a feasible
way to effectively deal with the global jobs crisis while at the same time inducing a benign and
more sustainable rebalancing of the global economy. However, it would require much more forceful
international policy coordination and a shift in the orientation of the Cannes Action Plan of the Group
of Twenty (G20).


Box I.4 (cont’d)




37Global economic outlook


by the IMF, the ILO and the United Nations Conference on Trade and Development
(UNCTAD) suggest that rising inequality has implications for the effectiveness of macro-
economic policies and global rebalancing.16 Declining wage shares (resulting from higher
unemployment and underemployment or lagging real wage growth)  may undermine
consumption growth and thereby contribute to national and international imbalances.
Labour market and income policies may thus need to supplement fiscal and monetary
policies for a more balanced outcome. In particular, allowing labour incomes to grow at
the pace of productivity growth can help underpin a steady expansion of domestic demand
and prevent income inequality from rising.


The supplementary policies could target the unemployed by, for example,
providing job-search training, short-term vocational training or general and remedial
training. These policies have worked in a number of countries to compensate for sharp
declines in vacancies. Social protection policies are another crucial element in cushioning
the impact of economic shocks and helping people avoid falling into poverty. They are also
important tools for boosting aggregate demand and contributing to the sustainability of
economic growth. Just as social transfers, such as family benefits, unemployment benefits
and other cash transfers, help protect household consumption against shocks or crises,
they also prevent asset depletion that may have adverse long-term consequences and fur-
ther undermine a sustainable recovery.


Addressing international financial market,
commodity price and exchange-rate volatility


The fourth challenge is to find greater synergy between fiscal and monetary stimulus, while
counteracting damaging international spillover effects in the form of increased exchange-
rate tensions and volatile short-term capital flows. This will require reaching agreement at
the international level on the magnitude, speed and timing of quantitative easing policies
within a broader framework of targets to redress the global imbalances. This, in turn, will
require stronger bilateral and multilateral surveillance, including through more thorough
assessment of spillover effects and systemic risks. While this need has been recognized by
the G20 and the International Monetary and Financial Committee of the IMF, acceler-
ated progress needs to be made in order to establish an operational framework that will
enable timely and concerted action to be taken to (a) address the present major risks in
global currency and financial markets and (b) signal when, for example, monetary policies
in major developed countries are likely to influence the size and composition of flows to
emerging and other developing countries. Cooperative policy solutions should, therefore,
take precedence as they can achieve better outcomes for the global economy and offload
pressures on developing countries to take strong measures to mitigate the impact of vola-
tile capital flows. Such cooperative policy solutions should also comprise deeper reforms of
(international) financial regulation, including those aimed at addressing risks outside the
traditional banking system (investment banks, hedge funds, derivatives markets, and so
forth). Requiring higher reserve requirements and/or collateral on cross-border portfolio


16 See Andrew Berg and Jonathan D. Ostry, “Inequality and unsustainable growth: two sides of the
same coin?”, IMF Staff Discussion Note, SDN/11/08 (Washington, D.C.: International Monetary
Fund, 8 April 2011); International Labour Organization (ILO), World of Work Report 2011 (Geneva),
chap. 3; and United Nations Conference on Trade and Development, Trade and Development Report
2011: Post-crisis policy challenges in the world economy (United Nations publication, Sales No. E.11.
II.D.3), pp. 16-22.


Better coordinated
monetary policies and
deeper financial reforms
are needed to curtail capital
flow, exchange-rate and
commodity price volatility




38 World Economic Situation and Prospects 2012


investments by non-banking institutions and setting limits on positions that financial
investors can take in commodity futures and derivatives markets may also help stem some
of the volatility in capital flows and mitigate commodity price volatility.


Such measures will, by no means, provide sufficient safeguards against contin-
ued volatility in food, energy and other commodity prices. To achieve that, much more
will need to be done to ensure a more sustainable supply of these commodities.


These sets of financial reforms will need to be complemented by deeper reforms
of the global reserve system, reducing dependence on the dollar as the major reserve cur-
rency through, for example, a better pooling of reserves internationally. The sovereign debt
crisis in Europe has emphasized the need for much stronger internationally coordinated
financial safety nets. This could be achieved through enhancing IMF resources and closer
cooperation between the IMF and regional mechanisms of financial cooperation (not just
in Europe, but also those in Asia, Africa and Latin America) and through enhancing the
role of Special Drawing Rights (SDRs)  as international liquidity, while expanding the
basket of SDR currencies to include currencies from major developing countries. Such
reforms are in the G20 pipeline, but have been sliding down the agenda. Global stability
will require that these be moved up the priority list.


Adequate development financing


The fifth challenge is to ensure that sufficient resources are made available to developing
countries, especially those possessing limited fiscal space and facing large development
needs. These resources will be needed to accelerate progress towards the achievement
of the MDGs and for investments in sustainable and resilient growth, especially in the
LDCs. Apart from delivering on existing aid commitments, donor countries should con-
sider mechanisms to delink aid flows from their business cycles so as to prevent delivery
shortfalls in times of crisis, when the need for development aid is at its most urgent.


More broadly, the global crisis and the recent financial turmoil have high-
lighted the need for very large liquidity buffers to deal with sudden, large capital market
shocks. Many developing countries have continued to accumulate vast amounts of reserves
($1.1 trillion in 2011) as a form of self-protection. But doing so comes with high oppor-
tunity costs and is contributing to the problem of the global imbalances. A better pooling
of reserves, regionally and internationally, could reduce such costs to individual countries
and could also form a basis for more reliable emergency financing and the establishment of
an international lender-of-last-resort mechanism. Broadening existing SDR arrangements
could form part of such new arrangements.


Ensuring more predictable
access to development
finance for developing


countries will require
further reforms to the
international financial


architecture




39Global economic outlook


Appendix


A coordinated policy scenario for job creation and stronger global growth, 2011-2016


2011 2012 2013 2014 2015 2016


GDP growth (percentage)


United States 1.6 2.7 3.2 3.2 3.2 3.2
Europe 1.7 2.4 2.4 2.3 2.3 2.3
Japan and other developed countries 0.2 2.3 2.3 2.5 2.5 2.5
China and India 9.0 9.0 8.8 8.7 8.6 8.5
CIS and Western Asia (major oil exporters) 5.8 6.0 6.3 6.5 6.4 6.4
Other developing countries 4.1 5.5 5.5 5.6 5.6 5.6


Additional employment with respect to the baseline (millions)


United States 0.0 2.2 3.6 5.0 6.4 7.8
Europe 0.0 1.4 2.8 3.9 4.8 5.7
Japan and other developed countries 0.0 0.1 0.6 1.2 1.5 1.8
China and India 0.0 2.8 4.8 6.9 10.0 13.6
CIS and Western Asia (major oil exporters) 0.0 0.6 1.2 1.7 2.4 3.1
Other developing countries 0.0 2.7 5.2 8.1 12.1 16.7


Growth of government spending (constant prices, percentage)


United States 1.1 1.0 1.3 1.7 1.8 1.9
Europe 0.0 0.0 0.3 0.5 0.5 0.5
Japan and other developed countries 1.6 1.6 1.4 1.2 1.1 1.1
China and India 6.4 6.5 6.8 7.5 7.4 7.2
CIS and Western Asia (major oil exporters) 4.3 5.6 4.5 4.2 4.9 5.1
Other developing countries 4.9 5.8 5.2 5.1 5.2 5.2


Growth of private investment (constant prices, percentage)


United States -1.1 -2.2 5.2 7.0 7.3 6.9
Europe 2.4 -0.5 3.9 4.6 4.4 3.9
Japan and other developed countries 3.7 2.8 4.9 4.2 3.6 3.1
China and India 8.9 8.1 8.1 8.0 7.6 7.4
CIS and Western Asia (major oil exporters) 13.9 11.3 8.4 7.2 7.9 7.9
Other developing countries 7.0 6.6 7.7 7.6 7.8 7.9


Fiscal balance (net government financial surplus, percentage of GDP)


United States -10.0 -8.6 -7.3 -6.5 -5.9 -5.4
Europe -6.0 -4.8 -4.1 -3.5 -3.0 -2.5
Japan and other developed countries -1.7 -1.9 -1.7 -1.5 -1.1 -0.8
China and India -3.6 -2.8 -2.2 -1.8 -1.5 -1.2
CIS and Western Asia (major oil exporters) -3.1 -2.7 -2.0 -1.5 -1.0 -0.7
Other developing countries -3.2 -3.3 -3.1 -3.0 -2.8 -2.7


Net private sector financial surplus (percentage of GDP)


United States 6.5 5.7 4.9 4.2 3.5 3.0
Europe 4.7 3.6 3.1 2.6 2.1 1.7
Japan and other developed countries 2.2 1.6 1.3 1.1 0.9 0.7
China and India 7.1 5.8 4.8 4.2 3.6 3.1
CIS and Western Asia (major oil exporters) 9.0 7.1 6.2 5.6 5.4 5.2
Other developing countries 4.3 4.1 3.8 3.7 3.5 3.4




40 World Economic Situation and Prospects 2012


Appendix (continued)


2011 2012 2013 2014 2015 2016


Current-account balance (percentage of GDP)


United States -3.1 -2.9 -2.5 -2.3 -2.4 -2.4
Europe -1.3 -1.2 -1.0 -0.9 -0.8 -0.8
Japan and other developed countries 0.5 -0.2 -0.4 -0.4 -0.3 -0.2
China and India 3.4 3.0 2.7 2.4 2.1 1.9
CIS and Western Asia (major oil exporters) 5.9 4.4 4.1 4.2 4.4 4.5
Other developing countries 1.1 0.8 0.7 0.7 0.7 0.7


Government debt a (percentage of GDP)


United States 84 87 89 90 90 89
Europe 81 82 83 85 86 87
Japan and other developed countries 146 141 142 144 145 146
China and India 18 19 17 17 18 18
CIS and Western Asia (major oil exporters) 35 38 38 36 35 34
Other developing countries 44 47 49 50 51 51


Memorandum items


Growth of gross world product
at market rate (percentage) 2.8 3.9 4.0 4.1 4.1 4.1
Growth of gross world product
at PPP rate (percentage) 3.8 4.8 4.9 5.0 5.0 5.1
Global creation of employment
above baseline (millions) 0.0 9.7 18.2 26.8 37.3 48.8
Employment gap compared with
2007 employment rate (millions) -63.8 -58.9 -53.1 -44.3 -29.1 -6.4
Growth of exports of goods
and services (percentage) 8.4 11.3 9.3 8.2 7.6 6.8
Real world price of energy (index) 1.5 1.6 1.5 1.4 1.4 1.4
Real world price of food and
primary commodities (index) 1.0 1.0 1.0 1.0 1.0 1.0
Real world price of manufactures (index) 1.0 1.1 1.1 1.1 1.1 1.1


Source: UN/DESA Global Policy Model, available from http://www.un.org/en/development/desa/policy/un_gpm.shtml.


a Public debt is measured on a cash basis and, data permitting, nets out intragovernment debt.




41


Chapter II
International trade


Slowing merchandise trade
The recovery of world trade was as vigorous in 2010 as had been its decline in 2009. It lost
a great deal of momentum in 2011, however, with the growth of world trade volume slow-
ing from 12.6 per cent in 2010 to 6.6 per cent. Weaker global economic growth, especially
among developed economies, is the major factor behind the deceleration. As a result, over
the four-year period that started with the sharp deceleration of world trade in 2008, the
level of world import volume has remained well below trend.1 In the baseline outlook for
2012 and 2013 (see chap. I), global economic activity would falter without going into re-
cession. Even with the possibly optimistic assumptions of the baseline, world trade would
continue to drift further away from the trend (figure II.1). Against this benchmark, the
volume of world trade would be 30 per cent below the level that might have been reached
had there been no global financial crisis.


During the crisis, import volume of developing countries fell to about 13 per cent
below trend, but recovered strongly, to catch up almost fully with the rapidly rising trend
experienced in the early 2000s (figure II.2). In 2010, developing country import growth
contributed to half of world trade growth (compared with 43  per  cent in the pre-crisis
period of 2004-2007). Among developing regions, East and South Asia led the recovery in


1 This refers to the continued linear trend estimated for 2001-2007.


Growth in world trade
decelerated in 2011
with the weakening of
developed economies


Figure II.1
Below-trend growth of world merchandise trade, 2002-2013


15


0


-15


2002 2003 2004 2005 2006 2007 2008 2009 2010 2011a 2012b 2013b
100


120


140


160


180


200


220


240


Source: UN/DESA.
a Partly estimated.
b Projections.


World import volume
(left-hand scale)


World gross product
(left-hand scale)


World import
trend (2001-2007)
(right-hand scale)


World import
level (2001=100)
(right-hand scale)




42 World Economic Situation and Prospects 2012


external demand, accounting for about three quarters of the growth of imports of devel-
oping economies in 2010, followed by Latin America and the Caribbean, accounting for
17 per cent; Western Asia and Africa contributed about 7.0 and 2.0 per cent, respectively.
China continues to be the key driver of import growth among developing countries, ac-
counting for 37 per cent of the growth of imports of all developing countries in 2010.


The below-trend recovery of global trade is almost fully explained by the weak-
er import demand in developed economies. Import demand had declined to 21 per cent
below trend by 2009 and did not catch up thereafter. The gap is expected to widen further,
to 30 per cent by 2013, in the baseline scenario.


Shifting patterns of merchandise trade
The marked weakness of import demand from developed countries following the collapse
in 2008-2009 comes on top of a decade-long decline of their predominance in inter-
national trade. Between 1995 and 2010, their value share in world merchandise trade
declined from 69 to 55 per cent, while that of developing countries increased from 29 to
41 per cent (figure II.3). Over this 15-year period, China’s share alone increased fourfold
from 2.6 per cent to about 10.0 per cent. Over the same period, the market share of Latin
America and the Caribbean increased from 4.5  per  cent to 5.9  per  cent. The value of
Africa’s merchandise exports rose from $100 billion in 1995 to $560 billion in 2010, while
its share in world trade improved modestly from 2.0 per cent to 3.2 per cent. World market
penetration of exports from the least developed countries (LDCs), small island developing
States (SIDS) and landlocked developing countries (LLDCs) remains extremely limited.
For example, even though LDC exports have grown over fivefold since 1995, their world


Figure II.2
Diverging trends in world import growth, 2002-2013


100


150


200


250


300


2002 2003 2004 2005 2006 2007 2008 2009 2010 2011a 2012b 2013b


Source: UN/DESA.
a Partly estimated.


b Projections.


Import trend,
developing countries


(2001-2007)


Import level,
developing countries


(2001=100)


Import trend,
developed countries


(2001-2007)


Import level,
developed countries


(2001=100)




43International trade


market share is still less than 1 per cent. World market shares of SIDS and LLDCs amount
to much less than 1 per cent.


The shifting patterns of trade are associated with the rapid industrial growth
of a range of developing countries. Moving from agricultural and other primary produc-
tion to manufacturing tends to drive up the import intensity of production; moreover,
global trade increasingly involves value chains with different geographical locations con-
tributing various parts to the production processes. Such shifting patterns of trade, as
well as the increased demand for primary commodities from the rapidly growing econo-
mies, has strengthened South-South trade (figure II.4). South-South trade increased at
a rate of 13.7 per cent per year between 1995 and 2010—well above the world average
of 8.7 per  cent. Over the same period, the South’s merchandise exports to the North
increased by 9.5 per cent per annum.


While recent import demand in most developing countries has remained vig-
orous, only a few of these countries have succeeded in climbing up the global value chain
and diversifying their export base to cater to markets previously dominated by developed
economies. Indeed, about 83 per cent of the increase in the share of developing countries’
total world trade between 1995 and 2010 (figure II.3) was accrued by the subset of emerg-
ing economies (the BRICS2 plus Mexico and the Republic of Korea). East and South Asia
include three of the most dynamic emerging economies—China, India and the Republic
of Korea—accounting for about one third of world exports and two thirds of developing
country exports in 2010. Some of these gains, as noted, result from growing cross-border
specialization involving smaller segments of value chains, which in turn increase trade
shares and the value of shipments, imports and exports (box II.1).


2 Brazil, the Russian Federation, India, China and South Africa.


South-South trade has
expanded rapidly


Figure II.3
Gains and losses in world market shares of merchandise tradea


0


10


20


30


40


50


60


70


80


Developed
countries


Developing
countries


Economies
in transition China India


Emerging
economiesb


1995


2000


2007


2010


Source: UN/DESA.
a Share of total exports and
imports in total world exports
and world imports.
b Includes Brazil, China, India,
Mexico, the Republic of Korea,
the Russian Federation and
South Africa.




44 World Economic Situation and Prospects 2012


Figure II.4
Developed (North)a and developing (South)a economies,
bilateral shares in world exports, 1995 and 2010


1995


2010


0


10


20


30


40


50


60


North-North North-Southb South-Northc South-South


Source: UNCTAD secretariat
calculations, based on


UN Comtrade, available from
http://comtrade.un.org/db/.


a Developed economies
(North) and developing


economies (South) are based
on the UN/UNCTAD


country classification.
b Exports from North


to South.
c Exports from South


to North.


Maritime transportation underpinning
the growing role of the South in world trade


Maritime transport handles over 80 per cent of the volume of global trade and accounts for over
70 per cent of its value. Since 1970, global seaborne trade has expanded on average by 3.1 per cent
every year, reaching an estimated 8.4 billion tons in 2010. At this pace, and assuming no major up-
heaval in the world economy, global seaborne trade is expected to increase by 36 per cent in 2020
and to double by 2033. While bulk trade accounts for the largest share of global seaborne trade by
volume, the containerized cargo contribution grew more than threefold between 1985 and 2010.


Developing countries are driving growth in global merchandise trade, with South-
South links emerging strongly. Africa and Latin America are increasingly becoming suppliers of
China’s primary commodity needs and, in return, China’s consumer goods are being exported more
and more to these regions. These developments are shaping the configuration of maritime transpor-
tation. Figure A illustrates the changing position of developing countries in global seaborne trade
between 1970 and 2010. The share in unloaded goods grew from 18 to 56 per cent, mainly owing
to rising import volumes. As shown in figure B, Asia’s share of unloaded goods increased from 6.4 to
45.9 per cent over the same period, confirming Asia’s increasing share of world trade.


Uncertainties in the global supply of shipping capacity


In 2010, deliveries of new vessels reached a 36-year record high, increasing the world’s maritime car-
rying capacity by 11.7 per cent. The surge in deliveries following the deep economic downturn and
trade collapse of 2009 reflects the prevailing time lag between orders and deliveries inherent in the
shipbuilding industry. The massive order book of 2008, placed when the world economy and trade
were booming, led to record ship deliveries in 2010 following the fragile recovery.


Box II.1




45International trade


Box II.1 (cont’d)


Figure A
Share of developing countries in world volume of goods,
loaded and unloaded, 1970, 1980, 1990, 2000 and 2010


Percentage of world total, tons


0


10


20


30


40


50


60


70


1970 1980 1990 2000 2010


Goods loaded Goods unloaded


Source: UNCTAD, Review of
Maritime Transport,
various issues, Geneva.


Source: UNCTAD, Review of
Maritime Transport,
various issues, Geneva.


Figure B
Share of world volume of goods, loaded and unloaded,
by developing regions, 1970 and 2010
Percentage of world total, tons


Goods loaded Goods unloaded


0


5


10


15


20


25


30


35


40


45


50


Africa Asia


Latin America
and the


Caribbean Africa Asia


Latin America
and the


Caribbean


1970 2010




46 World Economic Situation and Prospects 2012


For example, as shown in figure II.5, the share of intraregional trade within
the Association of Southeast Asian Nations (ASEAN) as a proportion of ASEAN trade
with the rest of the world increased by 2.4 percentage points (from 21.4 to 23.8 per cent)
between 2002 and 2010. Meanwhile, the share of total ASEAN trade with China, Japan
and the Republic of Korea increased from 26.7 to 29.8 per cent.3 As a result, in 2010,
trade within this broader region accounted for more than half of the value of total ASEAN
goods traded worldwide.


The trade gains from such regional trade are unevenly distributed, however.
While the share of the Republic of Korea in total ASEAN trade remained constant, at
about 4.6 per cent, that of China doubled to reach 14.3 per cent, mostly at the expense
of the share of Japan. It would thus seem that regional trade agreements are not the only
driving force behind strengthened intraregional trade; much is likely associated with the
reshaping of world trade by global production chains.


3 ASEAN and the three countries mentioned in the text agreed to strengthen economic ties in
1997. This broader regional cooperation is sometimes referred to as ASEAN Plus Three (ASEAN+3
or APT).


In the next few years, analysts forecast a continued oversupply of deliveries in the dry
bulk and container sectors. Moreover, some indicators hint at the continued expansion of shipyard
capacities in countries such as China and the Republic of Korea well beyond current market require-
ments. On the one hand, the current imbalance in ship carrying-capacity strongly challenges the
shipping industry, as oversupply exerts a dampening effect on freight rates and revenues. Increased
ship sizes pose a further challenge to owners, who need to find ever-larger shipments of cargo to
achieve the economies of scale required to operate these larger ships with a profit. On the other
hand, this may be good news for importers and exporters, as there should be no lack of affordable
shipping capacity to carry the moderate revival of world trade expected for 2012.


Investing in seaports and trade infrastructure as a counter-cyclical strategy


Mirroring growth on the demand and supply sides, world container port throughput increased by an
estimated 12.6 per cent, to 528.8 million twenty-foot equivalent units (TEUs), in 2010 after stumbling
briefly in 2009. Forecasts for 2011 and 2012 are for continued double-digit growth, strengthened by
the resumption of many port expansion projects put on hold during the economic downturn.


Keeping in mind the long-term requirements for a country’s foreign trade expansion
and the fact that a decline in transport investment today will inevitably entail future capacity re-
strictions on trade, transport infrastructure investments should be seen as a counter-cyclical policy
option with the advantage of contributing to fostering long-term growth through trade.


The expansion of maritime trade is accompanied by the opportunity for operational
economies of scale. Indeed, the technological developments required for the efficient management
of port services and infrastructure have also encouraged the construction of increasingly larger ships.
In this rapidly changing environment, transport connectivity seems key in determining the extent to
which cost savings derived from economies of scale are passed on to importers and exporters. The
resulting improvements in competitiveness are critical to ensuring a country’s effective integration
into global trading networks. However, as developing countries strive for improved infrastructure
capacity, they will be confronted with increasing concentration of shipping services. Recently, the
United Nations Conference on Trade and Development (UNCTAD) found that 35 coastal countries
were served by only three or fewer liner companies in 2011.a In other words, the consolidation of
services provided by the container shipping industry to achieve improved operational efficiency may
also have reduced negotiating powers for some players and resulted in less overall market efficiency
in some market segments.


Box II.1 (cont’d)


a UNCTAD, Review of
Maritime Transport 2011


(United Nations publication,
forthcoming).




47International trade


Volatile terms of trade
Trade affects national income through three factors: prices of exports, prices of imports
and the volume of demand.4 The international terms of trade (defined as the ratio of the
average export price and import price indices) provide a synthetic measure of relative
price changes over time. Preliminary estimates for 2011, suggest that the terms of trade
of mineral- and oil-exporting economies have continued their rebound from the export
price collapse in 2009 (figure II.6).5 In contrast, the terms of trade for economies relying
on manufactured exports have deteriorated on average. Exporters of minerals, including
oil, have seen dramatically large price shocks since 2007. Yet, world market prices for
those commodities seem to be on a longer term upward trend (see below). In 2011, min-
eral exporters experienced strongly improved terms of trade, in part since prices of some
precious metals increased sharply because heightened global economic uncertainty raised
their importance as a store of value.


Regional aggregates of the combined shocks caused by the changes in the terms
of trade and in the volume of export and import demand are shown in figure II.7A, and


4 These factors can be calculated, with some degree of accuracy, by combining information
from UN Comtrade (import and export structure), the United Nations Conference on Trade and
Development (UNCTAD) and other sources (international prices), and the Central Planning Bureau
of the Netherlands (CPB) and other sources (volume changes of imports and exports). See also
Alex Izurieta and Rob Vos, “Measuring the impact of the global shocks on trade balances via price
and demand effects”, World Economic Vulnerability Monitor, Methodological Notes, available from
http://www.un.org/en/development/desa/policy/publications/wevm/monitor_note.pdf.


5 Estimates for 2011 are extrapolations from observed data covering the first nine months of the
year. The forecasts for 2012 and 2013 are based on trade volume and commodity prices implied by
the baseline scenario for global trade and output growth presented in chapter I.


Terms of trade have
improved for mineral and
oil exporters


Primary commodity
exporting countries are
facing the biggest trade
shocks


Figure II.5
Shifting total trade market shares in Asia, 2002-2010


0


5


10


15


20


25


30


35


2002


ASEAN trade with China, Japan and Republic of Korea


Intra-ASEAN trade


ASEAN trade with Japan


ASEAN trade with China


ASEAN trade with Republic of Korea


2003 2004 2005 2006 2007 2008 2009 2010


Percentage share of each category over total ASEAN trade with the world


Source: UN/DESA, based on
data from the International
Trade Center.
Note: Some values for
2005-2007 are interpolated
from values in 2004 and 2008.




48 World Economic Situation and Prospects 2012


trade shocks by country groupings, according to export specialization, in figure II.7B.6
All regions faced negative trade shocks in 2009, followed by a turnaround


during the global economic recovery of 2010-2011. The adverse shock of 2009 was mainly
caused by the massive contraction of global demand (more than 3 per cent of world in-
come), but in part also by the collapse in commodity prices. The trade shocks were strong-
est among the economies in transition and countries in Western Asia and Africa. Because
of the sharp fluctuations in energy and other commodity prices, energy exporters faced the
strongest trade shocks, followed by mineral exporters. Agricultural exporters suffered less
dramatic trade shocks, in part because many of them are net energy importers and hence
see commodity price shocks that affect both sides of their external balances. For similar
reasons, most LDCs have not seen comparably strong terms of trade shocks, despite the
large swings in commodity prices. LDCs consist of a heterogeneous group of economies,
encompassing a wide range of export specializations, from energy and minerals to agri-
cultural and manufacturing exporters. Given the variety of export structures, LDCs, as a
group, resemble an “export-diversified” economy on average, but individual countries have
faced large shocks because of their skewed export base and/or high dependence on food
and energy imports.


Economies with more diversified export specialization have faced milder trade
shocks over the past three years and also have more stable export revenues and levels of
import demand, enabling more stable output growth. A similar pattern is observed for


6 The figures show the total trade shock estimated as the change in export prices times the volume
of the previous year’s exports, minus the change in import prices times the volume of last year’s
imports, plus changes in the volume of import demand times the price of last year’s imports. The
table in the appendix to the present chapter provides a breakdown of the components of the
trade shock.


Countries with diversified
exports or those specialized in


manufactures have been less
vulnerable to trade shocks


Figure II.6
Barter terms of trade of selected groups of countries, by export structure, 2000-2013


Index: 2000=100


60


80


100


120


140


160


180


200


220


240


2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013


Oil exporters
Exporters of minerals and other mining products
Exporters of agricultural products
Exporters of manufactures


Sources: UNCTADStat and
UN/DESA World Economic


Vulnerability Monitor
(WEVUM).




49International trade


countries specializing in manufactured exports, which, although having suffered a decline
in their terms of trade, have also seen steady demand growth for their exports.


In the outlook for 2012 and 2013, trade shocks are forecast to be mild when
measured as annual averages. Trade volumes are expected to show moderately positive
growth in the baseline scenario, while most commodity prices, except those of some min-
erals, especially precious metals, are assumed to experience corrections from the sharp
increases witnessed during 2010 and the first half of 2011.


Figure II.7
Trade shocks by region and export specialization, 2001-2013
(percentage of GDP of the group as a whole)


A. By region


W
or


ld


D
ev


el
op


ed
ec


on
om


ie
s


Ec
on


om
ie


s
in


tr
an


sit
io


n


La
tin


A
m


er
ic


a
an


d
th


e
Ca


rib
be


an


W
es


te
rn


A
sia


Ea
st


a
nd


So
ut


h
As


ia


Af
ric


a


Le
as


t d
ev


el
op


ed
co


un
tr


ie
s


15


12


9


6


3


0


-3


-6


-9


-12


-15


B. By main sector of export specialization


W
ho


le
re


gi
on


(W
)


En
er


gy
(>


4
0


pe
r c


en
t)


M
in


er
al


s
(>


4
0


pe
r c


en
t)


A
gr


ic
ul


tu
re


(>
4


0
pe


r c
en


t)


M
an


uf
ac


tu
re


(>
5


0
pe


r c
en


t)


D
iv


er
si


e
d


15


12


9


6


3


0


-3


-6


-9


-12


-15


2001-2007


2008


2009


2010-2011a


2012-2013b


Source: UN/DESA World
Economic Vulnerability
Monitor (WEVUM).
a Partly estimated.
b Projections.




50 World Economic Situation and Prospects 2012


Unstable commodity markets
Primary commodity prices boomed from 2003 to mid-2008, constituting the longest
rally of the post-Second World War period and following almost three decades of low,
albeit volatile, prices. The boom came to an abrupt end with the global financial crisis.
Commodity prices collapsed with the fall in global demand, exacerbated by a drop in in-
vestments in commodity derivatives due to financial sector deleveraging. Prices rebounded
strongly from the second quarter of 2009 in line with the global recovery, but in particular
with the resumption of robust growth in emerging and other developing countries (fig-
ure II.8). The upward cycle continued for all major commodity groups until the middle of
2011. In the case of metals, agricultural raw materials and tropical beverages, average price
levels for the year 2011 as a whole in fact surpassed 2008 averages.


The rebound in commodity prices can be explained in part by the “pincer
effect” of a tightening market caused by supply constraints and continuously growing de-
mand for commodities, especially from emerging economies. Insufficient investments in
oil production and refinery capacity, along with supply shocks caused by, inter alia, the
political unrest in the Middle East and North Africa, have constrained oil markets. In the
case of food and agricultural markets, a variety of factors have held back supply and kept
markets tight, including adverse weather patterns caused by greater climatic variability, de-
clining productivity growth in some regions, low levels of inventories, and increasing scar-
city of arable farmland and water. Measures in recent years by Governments in a number
of countries, including export restrictions and subsidies on the use of food crops for biofuel
production, have further increased scarcity in the markets for food crops in particular.


The rebound in commodity
prices continued upwards


until mid-2011


Slow supply expansion and
rising demand have


pushed up prices


Figure II.8
Total non-oil commodity price index, 2000-2011a


Index: 2000=100


Dollar


Special Drawing Rights


50


100


150


200


250


300


350


20
00


20
01


20
02


20
03


20
04


20
05


20
06


20
07


20
08


20
09


20
10


20
11


Source: UNCTAD.
a Average of the


first nine months.




51International trade


Financial factors have had a visible impact on recent commodity price trends
and volatility. The longer term trend towards a depreciating United States dollar has exac-
erbated the upward trend in commodity prices, since most commodity trade is in dollars
and traders demand higher prices in order not to lose revenue because of the exchange-rate
effect. Weak regulation of financial derivatives markets and policies of keeping interest
rates low have pushed massive financial investments into speculative trading in buoyant
commodity futures markets.7 This is assessed to have increased price volatility as well as
to have inserted an upward bias in spot prices.8 The annual number of commodity futures
contracts traded globally has risen from 418 million in 2001 to 2.6 trillion in 2011, with a
more than 14-fold increase in notional value, to $13 trillion.9 The dramatic rise in the vol-
ume of transactions by large financial actors has been suggested as a plausible explanation
for the disconnection between price movements and market fundamentals. Consequently,
the issue has attracted the growing attention of the international community, including
the Group of Twenty (G20) and the larger arena of the United Nations General Assembly
(box II.2).


Food and agricultural commodities


After sliding considerably in the first half of 2010, the agricultural commodity price indices
of the United Nations Conference on Trade and Development (UNCTAD) rose sharply,
reaching peaks around February 2011 (figure II.9). Despite subsequent falls, prices remain
comparatively high. The food price index averaged 268 points from January to September
2011, up 21.8 per cent from the same period in 2010. Within this category, the average
price of the main cereals (wheat, maize and rice) has continued its upward movement,
although rising at a slower pace than in the previous year. Meat, vegetable oils and sugar
prices have also been on the rise.


The impact on net food-importing countries has been considerable, but vari-
able. For example, the Horn of Africa was hit by famine following prolonged drought,
compounded by conflict and insecurity, while other countries in Africa enjoyed good
harvests of maize and sorghum. In developing Asia, in particular, rising prices for wheat,
edible oil and other food items have been a major factor in accelerating headline infla-
tion. Where food price increases were contained by food subsidies, they have given rise to
widening fiscal deficits, as was the case in Western Asia.


The outlook for wheat crops in 2012 is uncertain. Increased production projec-
tions for the European Union (EU) and the Commonwealth of Independent States (CIS),


7 The deregulation of United States exchanges in 2000 allowed index investors to be considered
“commercial” market participants, thereby exempting them from certain regulatory obligations.
For instance, investments in futures markets can be treated as “over-the-counter” (OTC) derivatives,
not listed in the exchanges. The OTC market involves trading derivatives directly between two
parties, where there is a risk that one party may default. In exchange trading, all parties must place
collateral (called a “margin”) against their positions held at the exchange. Margin calls are required
by the exchange whenever the collateral of any trading agent falls short of the margin required to
hold their positions. Positions are immediately liquidated if the margin call is not met. This reduces
risk-taking and the risk of default.


8 See World Economic Situation and Prospects 2011 (United Nations publication, Sales No. E. 11.II.C.2),
box II.1, pp. 53-54; and UNCTAD, Trade and Development Report 2011: Post-crisis policy challenges in
the world economy (United Nations publication, Sales No. E.11.II.D.3), chap. V.


9 UNCTAD projections based on Bank for International Settlements statistics (see UNCTAD,
Commodities and Development Report 2012: Commodities in the twenty-first century: Perennial
problems, new challenges, which way forward? (United Nations publication, forthcoming).


Financial variables are
increasingly influencing
commodity prices


Food prices peaked
in early 2011


The impact on net food-
importing countries has
been considerable




52 World Economic Situation and Prospects 2012


Commodity market volatility and financialization
reaches the international policy agenda


Major shifts in commodity market supply and demand balances have occurred over the past
few years. However, these shifts alone are insufficient explanation of the rapid increase in price
volatility affecting a wide range of commodities over the last half decade. Recent research and
analyses increasingly support the view that the greater involvement of financial investors and their
increased investments in commodities as financial assets have altered the functioning of commod-
ity markets.a


The adverse impact of food price volatility on the livelihood of millions of poor house-
holds and the potential inflationary effects of high food and energy prices have placed commodity
price issues back on the international policy agenda. In response to these concerns, the G20 iden-
tified food security as a priority area for the first time in the November 2010 Seoul Development
Consensus for Shared Growth. During the Ministerial Meeting on Development in Washington, D.C.,
in September 2011, the work of the G20 in this area culminated in the endorsement of the Action
Plan on Food Price Volatility and Agriculture to which Agriculture Ministers had agreed earlier in
Paris in June 2011.b This policy-oriented Action Plan emphasizes the need for enhanced agricultural
productivity and greater market transparency, while encouraging market participants to make better
use of commodity price risk management tools.


Taking a broader approach, the G20 Study Group on Commodities endorsed an analyti-
cally oriented report in November 2011. This report examines the determinants of recent commodity
price volatility, including the changing nature of commodity-related financial instruments and market
participants, in order to shed light on their growing influence on commodity price developments.c It
argues that financial investors can cause commodity prices to deviate from fundamental values when
their investment is large and when they engage in herd behaviour. Herding occurs when market
participants extrapolate from past price movements or mimic other traders’ position-taking without
looking at market fundamentals.d While the report acknowledges the existence of conflicting em-
pirical evidence of a persistent impact of financial investors on the level, volatility and correlation of
commodity prices, it also recognizes the growing research supporting the view that recent financial
investments have decisively affected price dynamics over short time horizons; furthermore, it finds
that some episodes of large and sudden price movements support the common-sense hypothesis
that amplification mechanisms existing in other financial markets are also at work in commodities fu-
tures and options markets. Subsequently, at the Cannes Summit in November 2011, the G20 endorsed
a report on commodity derivatives markets, prepared by the International Organization of Securities
Commissions (IOSCO), calling for more stringent regulation and enhancing the intervention power of
market authorities to ensure that commodity derivatives markets fulfil their function as price-discov-
ery and risk-transfer mechanisms.e Although these recommendations have a similar thrust, they are
less ambitious than the regulations that the U.S. Commodity Futures Trading Commission (CFTC) and
the European Commission propose to implement in the United States of America and the European
Union, respectively, over the next two years.


Partly as a result of the sequence in which the various reports on commodity price
developments have become available, the recent analytical findings and regulatory recommenda-
tions are thus far reflected in G20 policy statements only to a limited extent. However, the continued
salience of commodity price issues may lead the G20 to deepen its approach and translate these
findings and recommendations into tangible and internationally harmonized policy actions.


In addition, the growing consensus that heightened commodity price volatility affects
food security and sustainable development, in particular in commodity-dependent countries, has
triggered a deepening debate extending beyond the perceived scope of G20 engagement. Non-
members of the G20 are increasingly contributing to this debate with their own initiatives. The draft
resolution on addressing excessive price volatility in food and related financial and commodity
markets, initially tabled by the Group of 77 and China could, if adopted by the General Assembly
in December 2011, represent an important step in addressing this issue under the global and repre-
sentative umbrella of the United Nations.


Box II.2


a For a review of such
studies and further analysis


of the interplay between
physical and financial
commodity markets,


see UNCTAD, Trade and
Development Report 2011:


Post-crisis policy challenges in
the world economy (United
Nations publication, Sales


No. E.11.II.D.3), chap. V.


b See http://agriculture.
gouv.fr/IMG/pdf/2011-06-


23_-_Action_Plan_-_
VFinale.pdf.


c The report is available from
http://www.g20.org/exp_01.


aspx..


d See UNCTAD, Trade and
Development Report 2011,


op. cit., for further analysis.


e See International
Organization of Securities


Commissions (IOSCO),
“Principles for the


Regulation and Supervision
of Commodity Derivatives
Markets”, September 2011.


Available from http://www.
iosco.org/library/pubdocs/


pdf/IOSCOPD358.pdf.




53International trade


together with competitive prices relative to maize, may continue to encourage the use of
wheat for livestock feed, which could push up prices. The sugar price may continue its rise
in 2012, underscored by higher projected world demand for refined sugar in the light of
anticipated market deficits. The tropical beverages price index, which has risen steadily
since December 2010, may show moderation as a result of better-than-expected supply
conditions. The vegetable oilseeds and oil price index has declined from its all-time high
of February 2011, but price volatility may continue amidst uncertain supply and demand
prospects in major oilseed-producing and -importing countries.


The average price index for agricultural raw materials increased by 91 points
over the first three quarters of 2011 compared with the same period in 2010, mostly as
a result of supply shortfalls generated by adverse weather conditions and strong demand
in Asian emerging economies. Natural rubber prices remained high in 2011 owing to
strong demand for tyres in emerging market economies and high energy costs (especially
crude oil) which affected synthetic rubber prices. Supply disruptions from poor weather
conditions in major producing countries also contributed to increased prices. This pattern
was evident for cotton, too, which reached a historic high in March 2011 ($2.3 per lb), up
63 per cent from its 2009 average.


Minerals, ores and metals


The average UNCTAD price index for minerals, ores and metals, calculated from January
to September 2011, increased by 21  per  cent compared with the same period in 2010
(figure II.10). Metal prices remained high over this period owing to a combination of
tightening supply and strong industrial demand from Asian countries and Brazil.


Prices of metals have
increased and are expected
to rise further in 2012


Figure II.9
Price indices of commodity groups, January 2000-September 2011


Tropical beverages
Minerals, ores and metals
Food
Agricultural raw materials


Price index—all groups (in terms of current dollars)


50


100


150


200


250


300


350


400


450


Ja
n-


20
00


Ja
n-


20
01


Ja
n-


20
02


Ja
n-


20
03


Ja
n-


20
04


Ja
n-


20
05


Ja
n-


20
06


Ja
n-


20
07


Ja
n-


20
08


Ja
n-


20
09


Ja
n-


20
10


Ja
n-


20
11


Index: 2000=100


Source: UNCTAD.




54 World Economic Situation and Prospects 2012


Over the next few years, the slow expansion of supply in the mining sector,
coupled with an already challenging situation in upgrading mining capacity, is set to tight-
en supply further, likely resulting in rising metal prices in the medium term. According
to the International Copper Study Group (ICSG), the growth in global copper demand is
expected to outstrip copper production before the end of 2011 causing a production deficit
of about 160,000 tonnes of refined copper.


Gold continues to serve as a safe store of wealth during times of uncertainty
or exchange-rate volatility. Between January and December 2009, gold prices rose by
32 per cent, and yet again by 24 per cent from January to December 2010. By September
2011, the monthly average gold price set a new record of $1,772 an ounce, as investors took
refuge following weaker-than-expected recovery in both the United States of America and
Europe, coupled with perceived sovereign debt problems on both sides of the Atlantic.


The oil market


During the first three quarters of 2011, global oil demand increased by 1.2  per  cent
compared to the same period in 2010. Oil demand in developed countries declined by
0.7 per cent as their economies weakened. This decline was offset by strong demand for
oil from emerging market and developing countries, up by 3.4 per cent in 2010, pushed
by robust economic growth, particularly in China and India. Non-Organization for
Economic Cooperation and Development (OECD) countries commanded an estimated
48.7 per cent of global oil demand in 2011.


World oil supply increased by 1.2 per cent during the first three quarters of
2011. Production in the member States of the Organization of the Petroleum Exporting


Oil prices increased
moderately as demand


from emerging economies
grew, while OECD


demand slackened


Figure II.10
Price indices of non-ferrous metals, January 2007-September 2011


Aluminium


Copper


Lead


Zinc


Nickel


Ja
n-


20
07


A
pr


-2
00


7


Ju
l-2


00
7


O
ct


-2
00


7


Ja
n-


20
08


A
pr


-2
00


8


Ju
l-2


00
8


O
ct


-2
00


8


Ja
n-


20
09


A
pr


-2
00


9


Ju
l-2


00
9


O
ct


-2
00


9


Ja
n-


20
10


A
pr


-2
01


0


Ju
l-2


01
0


O
ct


-2
01


0


Ja
n-


20
11


A
pr


-2
01


1


Ju
l-2


01
1


Index: 2000=100


100


0


200


300


400


500


600


700


800


900


Source: UNCTAD.




55International trade


Countries (OPEC) increased by 2.7 per cent. Saudi Arabia has activated its spare capacity
and raised its supply by 1.4 million barrels per day (mbd), to reach 9.4 mbd in the third
quarter to compensate for the production loss in Libya. Meanwhile, oil supply by non-
OPEC countries, which represents two thirds of world production, is estimated to have
increased by 0.1 per cent owing to slowing production in OECD countries.


Oil stocks in the OECD countries decreased slightly in the first half of 2011.
Furthermore, on 23 June, the International Energy Agency (IEA) decided to release 60 mb
of strategic stocks in a coordinated manner over a 30-day period.


During the first ten months of 2011, oil traded at about 40 per cent above the
average price of 2010. The Brent oil price averaged $112 per barrel (pb), compared with
$79 pb for 2010 as a whole. A price hike occurred after the first of the Arab uprisings in
Tunisia on 18 December 2010; it intensified as political unrest spread across North Africa
and Western Asia. Speculation in oil futures markets about possible supply shortages be-
cause of the political unrest pushed up oil prices long before production facilities in Libya
were actually affected and despite the fact that supply outages were fully compensated for
by the activation of Saudi spare capacity. The Brent oil price peaked at $126 pb in mid-
and end-April before stabilizing at around $110 pb. The coordinated release of strategic
stocks by IEA members failed to appease fears of supply shortages; the Brent price did not
fall below $100 pb until October 2011, and only did so for a very short time.


Furthermore, Brent oil has been trading at an increased premium compared to
other crudes, especially West Texas Intermediate (WTI) crude (figure II.11A). A number
of factors are thought to explain the widening spread. On the supply side, infrastructure
constraints, including constraints in pipelines and access to storage facilities at the deliv-
ery point of North American crudes in Oklahoma have led to a build-up of inventories.
Additionally, Brent production in the mature North Sea fields is slowing down. These two
phenomena are not new, however. Other explanations point to specific demand factors and
the role of financial speculation. Indeed, as most of Libya’s oil is exported to Europe, the
outage in supply caused by the war translated into acute demand pressures on Brent, which
is chemically one of the closest substitutes for light sweet crudes from Libya. Rumours that
the European downstream industry might not be able to process similar quantities of
more heavy crudes in the short run subsequently nurtured fears that oil shipment patterns
would need to be rerouted. These fears further aroused the interest of financial speculators,
causing a surge of 32 per cent (year on year) in Brent open interests between January and
September, compared with 2 per cent in WTI open interest.10


During the first three quarters of 2011, oil price volatility also increased. Brent
oil prices, in particular, registered larger swings than in 2010 (figure II.11B). This has in-
creased the cost of hedging for buyers and sellers engaged in the physical oil trade. Several
studies suggest that the financialization of commodity markets has shaped the process of
price formation in spot markets, and a more stringent regulation of these markets is called
for (box II.2). However, the debate is not settled and is likely to remain controversial,
especially considering the huge vested interests of the financial players.


In the outlook for 2012, global oil demand is assumed to increase by
1.6 per cent, to 90.6 mbd. Demand from non-OECD countries, mainly driven by eco-
nomic growth in China and India, is expected to rise by 3.7 per cent on the back of ex-
panding industrial production and private energy consumption. Among OECD member


10 Open interest is the total number of derivative contracts not settled in the immediately preceding
period for a specific underlying security. A large open interest indicates more activity and liquidity
for the contract.


Political instability and fears
of supply shortages kept
prices high during
most of 2011


Financialization of
commodity markets has
amplified price swings
in spot markets


Oil demand is expected to
rise moderately in 2012,
driven by demand from
developing countries




56 World Economic Situation and Prospects 2012


Source: UN/DESA, based on data from the United States Energy Information Administration, available from
http://www.eia.gov/dnav/pet/pet_pri_spt_s1_d.htm.


Figure II.11
Oil prices


Ja
n-


20
10


D
ol


la
rs


p
er


b
ar


re
l


Fe
b


-2
01


0


M
ar


-2
01


0


A
pr


-2
01


0


M
ay


-2
01


0


Ju
n-


20
10


Ju
l-2


01
0


A
ug


-2
01


0


Se
p


-2
01


0


O
ct


-2
01


0


Ja
n-


20
11


Fe
b


-2
01


1


M
ar


-2
01


1


A
pr


-2
01


1


M
ay


-2
01


1


Ju
n-


20
11


Ju
l-2


01
1


A
ug


-2
01


1


Se
p


-2
01


1


O
ct


-2
01


1


N
ov


-2
01


0


D
ec


-2
01


0


A. Widening spread between Brent and WTI spot prices (daily prices), 2010-2011


Brent


West Texas Intermediate (WTI)


60


70


80


90


100


110


120


130


Ju
l-1


98
7


Ju
l-1


98
9


Ju
l-1


99
1


Ju
l-1


99
3


Ju
l-1


99
5


Ju
l-1


99
7


Ju
l-1


99
9


Ju
l-2


00
1


Ju
l-2


00
3


Ju
l-2


00
5


Ju
l-2


00
7


Ju
l-2


00
9


Ju
l-2


01
1


B. Increasing Brent price volatility (daily prices), 1987-2011


Absolute volatility (rebased)


Spot price (dollars per barrel)


0


20


40


60


80


100


120


140


160


180


200




57International trade


States, demand is projected to remain at the 2011 level. On the supply side, non-OPEC
countries are expected to post an increase in output of 1.8 per cent in 2012, to 53.7 mbd,
driven by non-OECD producers such as the Russian Federation, Brazil and newcomer
Ghana. Supply in OECD countries, which provide about 35 per cent of non-OPEC out-
put, will rise by 1.6 per cent as the exploitation of Canadian tar sands is expanding. Many
Gulf countries will likely seek to enhance oil revenues to fund increased social spending
resulting from measures announced in the wake of political unrest spreading across the
Middle East. Consequently, output from OPEC countries is expected to increase unless
oil prices stay up. Setting aside the uncertain influence of financial speculation, the Brent
price is forecast to average $100 pb in 2012. Market conditions will be characterized on
the supply side by a tightening of spare capacity among OPEC producers as well as by
a restocking of strategic oil reserves, while global demand will continue to be driven by
developing countries, especially those in Asia. The outlook is subject to significant uncer-
tainty, however. Weaker-than-expected global economic activity could create significant
downward pressure on oil prices, while a revival of political unrest in Gulf countries or
a stronger depreciation of the value of the dollar could trigger renewed price hikes. In
addition, in the context of low interest rates in major financial markets, more specula-
tive capital could be attracted to commodity markets in search of higher yields, possibly
exacerbating oil price volatility.


Growing trade in services
In 2010, services trade returned to positive growth in all regions and groups of coun-
tries, especially developing countries, the least developed amongst them in particular.
Nonetheless, the level of world trade in services has not yet fully recovered from the
downturn caused by the global financial crisis, mainly because of the sluggish recovery of
such trade in the developed countries and economies in transition. In all regions, growth
in services trade is lagging behind its pre-crisis pace (figure II.12A and B). Unlike mer-
chandise trade, however, services trade has shown less sensitivity to the global demand
shock triggered by the financial crisis. As a corollary, the rebound in trade in services was
also less pronounced during the recovery from the crisis. International tourism services
experienced similar patterns (box II.3).


As a result of diverging growth, the share of developing countries in world
services trade has increased notably, essentially at the expense of developed countries.
Despite fast growth of their tradable services industry, the share of LDCs has remained
almost constant since their initial level of services trade was very low.


The major services exporters among developing and transition economies
further improved their overall ranking in the world’s top 10 between 2006 and 2010
(table  II.1). China, which is both the largest importer and exporter of services among
developing countries and transition economies, moved from the eighth to the fourth posi-
tion in terms of exports, and from the sixth to the third position in terms of imports. In
the top 10 for developing countries and economies in transition, 8 of the top exporters also
rank among the top 10 importers. While their share in world trade in services is growing,
most developing countries and economies in transition continue to run a deficit on their
internationally traded services balance.


World trade in services
has been more stable than
merchandise trade




58 World Economic Situation and Prospects 2012


A. Exports of services (annual growth rates)


-20


-15


-10


-5


0


5


10


15


20


25


30


2006 2007 2008 2009 2010


B. Imports of services (annual growth rates)


2006 2007 2008 2009 2010
-0.3


-0.2


-0.1


0


0.1


0.2


0.3


0.4


Source: UN/DESA.


Figure II.12
International trade in services


World


Developing economies


Economies in transition


Developed economies


Least developed countries




59International trade


International tourism


Rebounding tourism


In 2010, world tourism rebounded from the recession induced by the financial crisis. Worldwide,
international tourist arrivals reached 940 million in 2010, up 6.6 per cent over the previous year. The
majority of destinations reported positive and often double-digit increases, sufficient to surpass
pre-crisis peak levels or bring them close thereto. Recovery was stronger in developing economies,
showing a growth rate of 8 per cent, compared to 5 per cent in developed countries that have not
yet fully recovered from a greater fall in 2009 (with Europe following a slightly different pattern as
weather and geological shocks caused some travel restrictions during 2010).


Receipts earned from international tourism by destination countries are registered
as services exports (travel credits) in the balance of payments. Worldwide, receipts increased by
5.4 per cent in real terms, reaching a value of $926 billion in 2010. Throughout 2009, international
tourism was more resilient than other trade categories, decreasing only by 5.5 per cent in real terms,
while overall exports decreased by 10.7  per  cent. Besides travel-related financial services, tourism
also generates export earnings through international passenger transport. As the latter amounted to
$174 billion in 2010, total tourism receipts reached $1.1 trillion in 2010. Travel and passenger transport
exports account for 30  per  cent of the world’s exports of commercial services and 6  per  cent of
overall exports of goods and services. As a worldwide export category, tourism ranks fourth after
fuels, chemicals and food, while ranking first in many developing countries (see figure).


In the first eight months of 2011, international tourist arrivals grew robustly, by
4.5 per cent. Europe, with 6 per cent growth, was the region showing the strongest growth, which
may seem surprising considering the continued economic uncertainty. Northern Europe, Central and
Eastern Europe, and Southern Europe grew by 7 per cent or more in 2011, following a milder recovery
in the previous year. Furthermore, Mediterranean destinations benefited from the shift of travel away
from the Middle East and North Africa, which fell by 9 and 15 per cent, respectively, impacted in both
cases by political turbulence.


Box II.3


International tourism revenue vis-à-vis other main export commodities, 1990-2010


Billions of dollars


0


500


1,000


1,500


2,000


2,500


3,000


1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010


International tourism
Fuels
Chemicals
Food
Automotive products


Sources: World Tourism
Organization (UNWTO) and
World Trade Organization
(WTO).
Note: International tourism
accounts for 30 per cent
of service exports and
6 per cent of goods and
services exports.




60 World Economic Situation and Prospects 2012


Growing trade in transport services


Trade in services in developing countries is concentrated mostly in transport, travel and
other merchandise trade-related services. This is the case on both the import and export
sides. Transport services play a key role in the process of economic development as they
allow for the integration of local goods production into global supply chains and for bring-
ing domestically produced goods directly to international markets. In recent decades,
developing countries have substantially expanded their expertise in the field of transporta-
tion, especially maritime transport. After initially becoming major market players in the
provision of seafarer and vessel registration, they more recently extended their dominant
position to practically all major maritime sectors. Today, developing economies have more
than a 50 per cent market share in 6 of the 11 sectors covered in table II.2. In shipbuilding,
scrapping and provision of seafarer and vessel registration, developing countries account
for more than three quarters of the supply. In 3 of the 11 sectors, developed countries
continue to dominate, with about 90 per cent or more of the market, notably in protection
and indemnity (P&I) insurance services, ship financing and ship classification.


The existing elevated degree of market concentration in the maritime services
business and lack of adequate institutional capacity are seen to form major barriers to entry
for many players. The increased specialization of maritime services providers in a limited
number of countries increases the distance between them. As a result, different industries
in the maritime services business develop ever more independently from each other, but
linkages strengthened by external economies of scale remain between them. For example,
a ship owner might find it more convenient to have both insurance and financing services


Economies of scale form
barriers to entry in the


maritime services business


Growth in Asia reached 6  per  cent, but was unevenly distributed across subregions.
While South-East Asia and South Asia registered double-digit rates, North-East Asia and Oceania
grew more weakly. South America, benefiting from favourable economic momentum and increased
regional integration, experienced growth of 13  per  cent. In sub-Saharan Africa, arrivals grew by
4 per cent.


On the demand side, expenditures on travel abroad (imports) for the first part of 2011
continued to be buoyant, thanks to the emerging economies of Brazil, China, India and the Russian
Federation, each increasing by over 20 per cent. Major mature markets—such as Canada, Germany,
Italy and the United States—showed healthy growth rates in the range of 4-6 per cent, while Australia,
the Republic of Korea and the Scandinavian markets had even stronger growth.


According to the latest survey of the World Tourism Organization (UNWTO) Panel of
Experts, while confidence has been deteriorating, it remains positive. Tourism demand is expected to
soften for the remainder of 2011, with full-year arrivals growing between 4 and 4.5 per cent. In 2012,
growth is projected to be in the range of 3 to 4 per cent.


Tourism and employment


Tourism is a significant sector for both developed and emerging economies, driving growth by offer-
ing opportunities for development and diversification through the creation of jobs, enterprises and
infrastructure. The direct contribution to gross domestic product (GDP) in major economies of both
inbound and domestic tourism varies between 1.5 and 7.7 per cent.a If additional non-direct effects
were included, the contribution of the sector may be anticipated to reach 11 per cent. The direct
contribution to employment lies between 2 and 14 per cent of the growth of total employment.


A recent UNWTO study finds that employment in tourism was less impacted by and
recovered more rapidly from the crisis compared to other economic sectors.b Employment decline
in hotels and restaurants was limited to developed economies in Europe and the Americas, while in
emerging economies, relevant employment growth was actually positive during the crisis.


Box II.3 (cont’d)


a World Tourism
Organization (UNWTO),
“Positioning tourism in


economic policy: evidence
and some proposals”,
available from http://


statistics.unwto.org/sites/all/
files/docpdf/t20_0.pdf.


b UNWTO, “Economic
crisis, tourism decline and


its impact on the poor”
(forthcoming). A preliminary


version of the study is
available from http://www.


unglobalpulse.org/projects/
rivaf-research-economic-


crisis-tourism-decline-and-
its-impact-poor.




61International trade


in the same country. Similarly, for ship classification, businesses may prefer to be closer
to their clients in the shipbuilding and ship operation businesses, or to banks that finance
ships requiring certification. Furthermore, institutional capacity and demand matter as
well. Having a well-functioning legal framework as well as adequate technical standards
and infrastructure in place is necessary for the expansion of an industrial base that will
allow advantage to be taken of internal economies of scale arising in sectors of maritime
services, such as the operation of container ships or shipbuilding.


In addition to those factors, the participation of developing countries in global
maritime and related businesses has been guided by different strategies. Some have relied
on the cost advantage of low wages, others have offered fiscal incentives or have chosen to
support the development of national maritime services through promotional policies and


Table II.1
Rankings of top developing countries and economies in transition in trade in services, 2006-2010


Annual percentage change


Share 2006 2010


2006 2007 2008 2009 2010
World
Rank


Rank among
developing
countries


World
Rank


Rank among
developing
countries


Sharesa and rankings of top 10 exporters


China 3.2 3.5 3.8 3.7 4.2 8 1 4 1
India 2.4 2.5 2.7 2.6 3.1 12 3 8 2
Singapore 2.3 2.4 2.6 2.6 2.9 13 4 9 3
Hong Kong SARb 2.5 2.4 2.4 2.5 2.9 10 2 10 4
Korea, Republic of 1.7 1.8 2.3 2.1 2.2 19 5 15 5
Russian Federation 1.1 1.1 1.3 1.2 1.2 25 6 23 6
Taiwan Province of China 1.0 1.0 0.9 0.9 1.1 26 7 24 7
Thailand 0.9 0.9 0.9 0.9 0.9 28 9 27 8
Turkey 0.9 0.8 0.9 1.0 0.9 27 8 28 9
Brazil 0.7 0.7 0.8 0.8 0.9 31 11 29 10
Developing economies 25.1 25.5 26.4 27 29.6
Economies in transition 2.4 2.6 2.9 2.7 2.7


Sharesa and rankings of top 10 importers


China 3.7 4.0 4.3 4.8 5.1 6 1 3 1
India 2.1 2.2 2.4 2.5 3.1 14 4 8 2
Singapore 2.4 2.3 2.4 2.5 2.8 13 3 10 3
Hong Kong SARb 2.5 2.6 2.6 2.4 2.6 12 2 11 4
Korea, Republic of 1.8 1.9 2 2.3 2.1 16 5 16 5
Russian Federation 1.6 1.8 2 1.9 2 18 6 17 6
Taiwan Province of China 1.1 1.1 1.3 1.4 1.8 27 10 18 7
Thailand 1.3 1.3 1.3 1.3 1.4 20 7 20 8
Turkey 1.2 1.2 1.3 1.2 1.3 23 9 23 9
Brazil 0.9 1.0 1.2 1.1 1.1 29 11 25 10
Developing economies 29.9 30.7 32.1 33.1 35.7
Economies in transition 3.0 3.3 3.6 3.3 3.4


Source: UNCTADStat.


a Shares in world total.
b Special Administrative Region of China.




62 World Economic Situation and Prospects 2012


targeted support. Developing countries such as the Republic of Korea and Singapore have
shown that growth of maritime businesses can work as a catalyst for economic progress.11


Trade policy developments


The Doha Round


The ongoing multilateral trade negotiations under the Doha Round (or “Doha Development
Agenda”) of the World Trade Organization (WTO)), which was launched more than ten
years ago, in November 2001, are at a complete stalemate, with practically no prospects
of completion owing to the “all or nothing” approach of the WTO, although there has
been considerable progress on specific issues. The most feasible way to conclude the Round
would seem to be by agreeing to a “smaller package” based on what has been agreed upon
thus far, with significant additional concessions to provide the LDCs with an “early har-
vest”. Otherwise, the likelihood of any further progress on multilateral trade negotiations
may well be undermined.


In this context, some participating Governments have raised the notion of a
“variable geometry” approach in WTO negotiations with a view to undertaking deeper
commitments and obligations amongst themselves. This approach is clearly a step removed
from the fundamental concept of the WTO as a “single undertaking”, which is the basis
for all existing WTO multilateral trade agreements—but not for those of the General
Agreement on Tariffs and Trade (GATT) before it. If implemented, it may put at risk the
unconditional most favoured nation (MFN) treatment, which has been the cornerstone
of the multilateral trading system since the inception of GATT at the end of the 1940s.


The current irreconcilable deadlock in the Doha Round has provided ad-
ditional motivation for countries to engage in preferential bilateral and regional trade


11 See UNCTAD, Review of Maritime Transport 2011 (United Nations publication, forthcoming).


The Doha Round remains
in a stalemate


The stalemate has
increased the role


of RTAs


Table II.2
Maritime sectors, comparison


Maritime transport sectors


Share of top 10
countries in
world total


Share of developing
countries in top


10 countries


Number of developing
countries among
top 10 countries


Ship scrapping (dwt) 99 99 5
Ship registration (dwt) 72 53 6
Ratings (headcounts) 50 90 8
Officers (headcounts) 52 75 6
Shipbuilding (dwt) 98 76 6
Classification (dwt) 69 26 4
Container terminal operations (TEU) 62 67 5
Container ship operation (TEU) 73 42 5
Ship owning (dwt) 95 11 2
Insurance, protection and indemnity (dwt) 75 2 2
Ship financing (US dollars) 70 0 0


Source: UNCTAD, Review of Maritime Transport 2011 (United Nations publication, forthcoming).
Note: “TEU” and ”dwt” are cargo capacity measurement units meaning “twenty-foot equivalent unit” and
“deadweight tonnage”.




63International trade


agreements (RTAs). The incentive for RTAs, in comparison to the WTO multilateral trade
agreements, is the possibility of undertaking deeper trade policy integration by including
and implementing WTO-plus and/or WTO-extra provisions such as those for non-tariff
measures, services sectors, intellectual property rights, or trade policy-related labour and
environment issues. RTAs also require much less time to negotiate—a crucial factor for
businesses. But this does not necessarily mean that RTAs also serve the objectives of long-
term development strategies of developing countries or that they would be in the interest of
workers in developed countries. Contradictions may arise when relatively small countries
find themselves either negotiating with powerful global businesses or with powerful coun-
try counterparts. Likewise, without the safeguards of multilateral and globally inclusive
understandings regarding the protection of employment, workers remain vulnerable to the
growing political power of corporations operating as global supply chains.


For example, global supply chains led by business interests play a major cata-
lytic role for new RTAs, as an increasing number of firms are now offshoring production
networks to developing and other economies. This will require new predictable trade and
investment rules. According to WTO estimates, there are now about 300 RTAs in force
worldwide compared with 37 in 1994, half of which have come into effect since 2000.
Many countries, including developing economies, see RTAs as a way to shield themselves
against external shocks, lock in market access with their key market counterparts, particu-
larly those in the North, and circumvent the lengthy multilateral process of negotiations
under the WTO. In the case of South-South trade, it is easier to improve market access
through RTAs, consistent with each country’s development objectives. Many developing
countries perceive this to be the most feasible means for gaining market access as the
prospects for completing the multilateral trade negotiations seem more remote.


The continued threat of protectionism


Since early 2008, a number of countries have introduced protectionist measures restricting
trade as part of their response to the global crisis. These attempts at protecting domestic
industries have raised fears of spiralling retaliatory responses, but resurgent protectionism
has been restrained thus far. The most recent joint WTO-OECD-UNCTAD report of
25 October 2011 showed that new import restriction measures taken between May and
mid-October of 2011 affect only 0.6 per cent of total G20 imports, the same proportion
recorded during the prior six months. Restrictive measures mainly affected machinery and
mechanical appliances, iron and steel articles, electrical machinery and equipment, organic
chemicals, plastics and man-made staple fibres. The incidence is less than that recorded
from October 2008 to October 2009 when trade-restrictive measures peaked, affecting
1.01 per cent of total world imports. However, the report noted that the political will to
resist creeping protectionism appears to be under increasing pressure. Commitments made
by G20 members to roll back export restrictions have not been met. In fact, the number of
export restrictions has continued to increase.12


12 While the number of export restrictions has increased significantly, from 16 over the period
from September 2009 to mid-October 2010 to 30 from mid-October 2010 to mid-October 2011,
the amount of world trade covered by all restrictions has fallen from 0.8 per cent of total world
imports in the first report of September 2009 to 0.5 per cent in the most recent report. See Reports
on G20 Trade and Investment Measures, issued on 14 September 2009 and 25 October 2011 by
the World Trade Organization (WTO), Organization for Economic Cooperation and Development
(OECD) and UNCTAD.


Protectionist measures in
response to the crisis have
been of low intensity so far




64 World Economic Situation and Prospects 2012


The institutional function of the WTO to administer multilateral trade rules
and disciplines is pivotal in ensuring that members do not resort to full-blown “beggar-
thy-neighbour” policies. Yet, given the present international economic environment, there
is still a danger that more countries will enhance protectionist measures, especially non-
tariff measures (NTMs), should political emotions dull the memories of the damaging
effects of past “beggar-thy-neighbour” policies and overpower the commitments to and
rationale for a multilateral trading system. The danger may increase if unemployment rates
remain high and the recovery loses further momentum.


In this context, there is an urgent need to address NTMs. There are legitimate
reasons for NTMs, such as the protection of health, safety and the environment, but they
have also been abused as a pretext for protectionism. NTMs therefore pose a major trade
policy challenge. Since 2008, the leaders of G20 countries have repeatedly discussed re-
fraining from NTM use because of their potential for slowing down the positive outcomes
of trade expansion and integration.13 “Green protectionism” through NTMs has recently
increased. While there are legitimate grounds for environmental protection in support of
sustainable production and consumption, concerns have arisen that such incentives are
forms of trade distortion that cannot be properly challenged in the dispute settlement
mechanism under current WTO trade rules. Hence, multilateral trade rules need further
revision to ensure that the necessary Government support to promote environmental pro-
tection and sustainable production and consumption is provided without undermining
the principles of a fair trading system.


13 See the G20 Cannes Summit Final Declaration of 4 November 2011, para. 65: “At this critical time
for the global economy, it is important to underscore the merits of the multilateral trading system
as a way to avoid protectionism and not turn inward. We reaffirm our standstill commitments until
the end of 2013, as agreed in Toronto, commit to roll back any new protectionist measure that may
have risen, including new export restrictions and WTO-inconsistent measures to stimulate exports
and ask the WTO, OECD and UNCTAD to continue monitoring the situation and to report publicly
on a semi-annual basis.” Available from http://www.g20.org/index.aspx.


NTMs are posing a serious
policy challenge




65International trade


Appendix


Trade shocks and changes in merchandise trade balance, by region, 2001-2013


Percentage of gross domestic product of the region


Demand shock:
change of export


volume


Terms-of-trade
shock: net value


change
Total


trade shock
Change in


import volume
Net change in
trade balance


World


Average 2001-2007 1.3 0.0 1.3 1.3 0.0
2008 0.9 0.0 0.8 0.8 0.0
2009 -3.4 0.0 -3.3 -3.3 0.0
2010 3.2 0.0 3.2 3.2 0.0
2011a 1.7 0.1 1.8 1.8 0.0
2012b 1.0 0.0 1.1 1.1 0.0
2013b 1.3 0.0 1.4 1.4 0.0


Developed economies


Average 2001-2007 0.8 -0.2 0.5 0.8 -0.3
2008 0.4 -0.7 -0.3 -0.2 -0.1
2009 -3.4 0.7 -2.7 -3.5 0.8
2010 2.4 -0.3 2.1 2.2 -0.1
2011a 1.2 -0.5 0.7 0.7 0.0
2012b 0.6 0.1 0.8 0.6 0.1
2013b 0.9 0.0 1.0 0.8 0.2


Economies in transition


Average 2001-2007 3.6 2.2 5.7 2.9 2.8
2008 1.7 4.7 6.4 1.8 4.5
2009 -4.1 -6.1 -10.1 -5.8 -4.4
2010 3.1 3.0 6.0 2.7 3.4
2011a 2.3 4.0 6.2 2.3 3.9
2012b 0.8 -0.8 -0.1 1.4 -1.5
2013b 1.3 -0.4 1.0 1.5 -0.5


Developing economies


Average 2001-2007 3.1 0.5 3.6 2.7 0.8
2008 2.1 1.1 3.2 1.7 1.5
2009 -3.1 -0.9 -4.0 -2.7 -1.3
2010 4.8 0.6 5.4 4.8 0.6
2011a 2.7 0.8 3.5 2.0 1.5
2012b 1.8 -0.1 1.7 2.1 -0.3
2013b 2.0 0.0 2.1 2.2 -0.1


Least developed countries


Average 2001-2007 3.1 0.5 3.6 2.7 0.8
2008 2.1 1.1 3.2 1.7 1.5
2009 -3.1 -0.9 -4.0 -2.7 -1.3
2010 4.8 0.6 5.4 4.8 0.6
2011a 2.7 0.8 3.5 2.0 1.5
2012b 1.8 -0.1 1.7 2.1 -0.3
2013b 2.0 0.0 2.1 2.2 -0.1




66 World Economic Situation and Prospects 2012


Appendix (cont’d)


Demand shock:
change of export


volume


Terms-of-trade
shock: net value


change
Total


trade shock
Change in


import volume
Net change in
trade balance


East and South Asia


Average 2001-2007 4.9 -0.2 4.7 3.5 1.2
2008 2.6 -0.5 2.1 1.8 0.4
2009 -3.2 1.3 -1.9 -2.2 0.3
2010 7.1 -0.7 6.4 5.9 0.5
2011a 3.8 -0.2 3.7 2.5 1.1
2012b 2.5 0.4 2.9 2.3 0.5
2013b 2.6 0.4 3.0 2.5 0.4


Western Asia


Average 2001-2007 1.2 2.5 3.7 3.1 0.5
2008 4.0 7.3 11.3 2.0 9.3
2009 -5.5 -8.6 -14.1 -3.4 -10.6
2010 1.6 4.1 5.7 2.5 3.2
2011a 1.3 4.9 6.3 0.4 5.9
2012b 1.2 -1.2 0.0 2.2 -2.2
2013b 1.8 -0.4 1.4 1.4 -0.1


Africa


Average 2001-2007 0.7 1.2 1.9 2.7 -0.8
2008 2.5 2.9 5.4 2.1 3.3
2009 -3.6 -3.1 -6.8 -2.8 -3.9
2010 0.9 1.9 2.8 2.1 0.7
2011a 0.9 1.9 2.8 0.4 2.4
2012b 0.8 -0.6 0.1 2.1 -2.0
2013b 1.2 -0.4 0.8 1.3 -0.5


Latin America and the Caribbean


Average 2001-2007 1.0 0.7 1.7 1.0 0.7
2008 -0.1 1.0 0.9 1.4 -0.5
2009 -1.5 -0.8 -2.3 -3.3 1.0
2010 2.1 1.5 3.6 4.0 -0.4
2011a 1.0 0.9 1.9 1.9 -0.1
2012b 0.8 -0.6 0.3 1.3 -1.0
2013b 1.0 -0.5 0.5 1.8 -1.3


Source: UN/DESA World Economic Vulnerability Monitor, based on UN Comtrade and UNCTAD data.


a Figures for 2011 are partly estimated.
b Figures for 2012-2013 are projections.




67


Chapter III
International finance
for development


Financing for development is inherently linked to the global environment. While the in-
ternational community has taken steps to strengthen the global financial system through
regulatory reforms—as contained in the internationally agreed Basel III framework, the
United States Dodd-Frank Wall Street Reform and Consumer Protection Act and other
new regulations implemented elsewhere—these reforms do not adequately address risks in
the international financial system, including their impacts on developing countries.


Volatile capital flows originating in the developed economies continue to
threaten boom and bust cycles in developing countries. The sovereign debt crisis in Europe
and the uneven global recovery have led to heightened risk aversion, which has increased
the volatility of private capital flows. A growing liquidity squeeze in the European inter-
bank market has impacted cross-border interbank flows. At the same time, official develop-
ment assistance (ODA) and other forms of official flows are being affected by greater fiscal
austerity and sovereign debt problems in developed countries. Similar to private flows, aid
delivery has been pro-cyclical and volatile. The effectiveness of development finance is also
severely hindered by shortcomings in international cooperation pertaining to increasing
ODA, as well as by the lack of adequate mechanisms for resolving sovereign distress.


Reforms of the international financial system should focus on reducing risk
and volatility associated with both private and official flows. Mechanisms to this end,
such as improved regulations and reforms to the international reserve system, are crucial
to maintaining policy space for developing countries and ensuring adequate financing for
development.


This chapter discusses the current global issues associated with the interna-
tional financial system and their impact on financing for development.


Private capital flows and
macroeconomic imbalances


Managing the macroeconomic volatility induced by private financial flows is a major chal-
lenge for emerging market and developing country policymakers. Waves of capital inflows
in excess of an economy’s absorptive capacity, or highly speculative in nature, complicate
macroeconomic management and carry risks for financial and economic stability. They
may lead to exchange-rate overshooting, credit and debt bubbles, inflation and asset price
bubbles. More importantly, there is a risk of sudden stops and withdrawals of international
capital due to heightened risk aversion, which contribute to spreading financial crises.


Policymakers in many developing countries have responded to these risks
by increasing the accumulation of international reserves as a form of “self-insurance”.
However, this has had the effect of exacerbating global imbalances. Furthermore, the strat-
egy of building up international reserves is a costly one, particularly in terms of the opportu-
nity cost of forgone domestic investment. A large share of international reserves is invested
in low-yielding (yet considered safe) United States Treasuries, implying a net transfer of


Recent reforms to the
international financial
system do not adequately
address risks


Volatile capital inflows
complicate macroeconomic
management




68 World Economic Situation and Prospects 2012


resources from poorer countries to wealthier ones. Policymakers in many developing and
emerging market countries have thus begun to look to capital-account regulations to man-
age volatile inflows and increase domestic policy space.


Trends in private capital flows


Over the past several years, international capital flows to developing countries have been
characterized by extreme volatility. The collapse in capital flows during the global financial
crisis was followed by a renewed surge in inflows in 2010. Capital inflows began to fall
again in September 2011, as growing fears among portfolio investors over the sustainabil-
ity of public finances in Europe gave rise to a general “flight to safety”. Overall, the latest
figures indicate that net private capital flows to developing countries amounted to $482
billion in 2010 and are forecast to total about $575 billion in 2011, about half of their peak
level of 2007, as discussed in chapter I.1 However, aggregate numbers on net flows mask
differences in the types of inflows and risks, additional risks from derivatives, as well as
differences across regions and countries (see table III.1).


The data on private capital flows is generally divided into three categories:
foreign direct investment (FDI), portfolio flows and other flows such as cross-border inter-
bank lending. As shown in chapter I, figure I.5, FDI is the largest capital inflow with the
lowest volatility. Lower relative volatility of FDI is in large part because FDI, especially
greenfield direct investment, tends to have longer-term investment horizons, and be at-
tracted by factors such as high growth rates, cheap asset prices, rule of law and strong
macroeconomic fundamentals. On the other hand, short-term flows, including many
forms of portfolio investment and cross-border interbank lending, tend to be attracted to
developing countries because of high relative short-term interest rates, which often out-
weigh longer-term fundamentals.


Capital flows to developing countries are not only subject to short-term volatil-
ity, but also to medium-term fluctuations, reflecting the successive waves of optimism and
pessimism that characterize financial markets. These fluctuations are reflected in the pro-
cyclical pattern of spreads, which narrow during booms and widen during crises, shorter
maturity of financing during crises and variations in the availability of financing.


International capital flows are also dependent on economic conditions in de-
veloped countries. In particular, there is evidence that international flows are highly cor-
related with global risk aversion.2 Although the evidence on the impact of global liquidity
on total capital flows is more ambiguous, short-term private flows, such as cross-border in-
terbank lending, seem to be particularly responsive to liquidity and interest rates.3 When
interest rates are low, international investors look to invest abroad in search for higher
yields. On the other hand, during periods of tight liquidity, banks often reduce lending
abroad to deal with liquidity shortages at home.


1 Data in the text refer to the “net net” concept of capital flows, which is measured as “net inflows
minus net outflows”, according to balance-of-payments definitions. Cited numbers are from the
International Monetary Fund (IMF), World Economic Outlook database, September 2011.


2 Kristin J. Forbes and Francis E. Warnock, “Capital flow waves: surges, stops, flight, and
retrenchment”. NBER Working Paper, No. 17351 (Cambridge, Massachusetts: National Bureau of
Economic Research, August 2011), finds that flows are highly correlated with global volatility.


3 Bank for International Settlements (BIS), “Global liquidity—concept, measurement and policy
implications”, CGFS Publication, No. 45 (Basel, Switzerland: Committee on the Global Financial
System, November 2011).


Private capital flows
continue to be
highly volatile


Private capital flows are
subject to both short- and
medium-term fluctuations




69International finance for development


Table III.1
Net financial flows to developing countries and economies in transition, 1998-2012


Billions of dollars


Average annual
flow


2008 2009 2010 2011a 2012b
1998-
2001


2002-
2007


Developing countries


Net private capital flows 56.8 160.9 176.5 350.6 404.5 522.7 528.7
Net direct investment 153.5 204.6 360.6 237.7 279.7 364.0 384.5
Net portfolio investmentc -5.0 -58.4 -94.2 28.5 46.8 -76.4 -84.5
Other net investmentd -91.7 14.7 -89.9 84.4 77.9 235.1 228.7


Net official flows -12.9 -74.3 -125.4 14.6 47.7 -132.4 -147.8
Total net flows 43.9 86.6 51.2 365.1 452.2 390.4 380.9
Change in reservese -83.0 -534.0 -786.3 -691.5 -943.3 -1116.6 -1074.2


Africa


Net private capital flows 10.4 14.9 13.3 26.1 19.0 38.3 51.1
Net direct investment 12.7 25.2 51.4 46.1 35.0 40.9 46.1
Net portfolio investmentc -0.3 0.5 -43.0 -18.0 -6.1 -7.9 -1.6
Other net investmentd -2.0 -10.8 4.9 -2.0 -9.9 5.3 6.6


Net official flows -1.7 -4.5 9.0 22.5 32.0 11.4 17.0
Total net flows 8.8 10.4 22.4 48.6 51.0 49.6 68.1
Change in reservese -7.2 -46.2 -74.0 2.3 -29.7 -49.9 -46.5


East and South Asia


Net private capital flows -9.4 101.5 21.3 273.7 298.7 324.5 314.5
Net direct investment 62.7 101.8 154.9 68.3 140.7 156.4 152.8
Net portfolio investmentc 5.9 -25.7 -42.2 47.5 41.3 -43.6 -72.3
Other net investmentd -77.9 25.3 -91.4 157.9 116.7 211.7 233.9


Net official flows 0.9 -26.5 -30.4 -5.6 -5.4 -58.4 -71.1
Total net flows -8.5 75.0 -9.1 268.1 293.3 266.0 243.4
Change in reservese -75.5 -368.2 -528.8 -650.9 -708.7 -823.7 -856.1


Western Asia


Net private capital flows 8.1 17.3 87.0 68.1 49.7 39.7 63.8
Net direct investment 6.9 25.2 58.1 55.9 32.4 40.1 48.0
Net portfolio investmentc -6.9 -24.8 10.2 14.7 0.9 -21.1 -9.6
Other net investmentd 8.1 16.8 18.7 -2.5 16.4 20.7 25.4


Net official flows -18.1 -33.9 -105.5 -43.6 -25.6 -119.1 -123.5
Total net flows -10.0 -16.6 -18.5 24.5 24.1 -79.4 -59.7
Change in reservese -2.6 -73.6 -133.2 6.1 -101.7 -123.0 -109.3


Latin America and the Caribbean


Net private capital flows 47.6 27.2 54.9 -17.3 37.1 120.3 99.3
Net direct investment 71.2 52.3 96.1 67.4 71.7 126.7 137.6
Net portfolio investmentc -3.7 -8.5 -19.2 -15.7 10.7 -3.8 -1.0
Other net investmentd -19.9 -16.6 -22.1 -69.0 -45.3 -2.6 -37.3


Net official flows 6.0 -9.3 1.5 41.2 46.7 33.8 29.7
Total net flows 53.6 17.9 56.4 24.0 83.8 154.1 129.0
Change in reservese 2.3 -45.9 -50.4 -48.9 -103.3 -120.0 -62.4




70 World Economic Situation and Prospects 2012


Foreign direct investment (FDI)


As shown in chapter I, FDI in developing countries has tended to be more stable and geared
towards the longer term than other types of private capital flows. However, FDI remains
concentrated in a few regions and countries. Approximately 70 per cent of FDI is invested
in East and South Asia and Latin America and the Caribbean. Almost 90 per cent of FDI
in East and South Asia is in China and India, while 50 per cent of FDI in Latin America
and the Caribbean is invested in Brazil.


FDI is becoming increasingly significant in least developed countries (LDCs).
In recent years, FDI flows have become larger than bilateral ODA to LDCs as a group,
with the major share of FDI to LDCs taking the form of greenfield projects. However, FDI
inflows to the LDCs accounted for only 5 per cent of FDI inflows to the developing world
in 2010.4 In addition, the distribution of FDI flows among LDCs remains uneven, with
over 80 per cent of the capital going to resource-rich economies in Africa.


In regions with greater proportions of FDI, there is growing evidence that FDI
has become more financialized, with less investment in greenfield direct investment and
more investments in financial companies or in intracompany debt.5 Some items recorded
as financial sector FDI can disguise a build-up in intragroup debt in the financial sector,
which has a risk profile that is more akin to debt than FDI. Similarly, privatizations and
mergers and acquisitions are categorized as FDI, even though they often represent an
ownership transfer rather than new investment. In fact, during the recent crisis, countries
with larger stocks of debt liabilities or financial FDI fared worse than those with larger
stocks of greenfield investment.6


4 United Nations Conference on Trade and Development (UNCTAD), “Foreign direct investment in
LDCs: lessons learned from the decade 2001-2010 and the way forward”, (Geneva, May 2011).


5 UNCTAD, World Investment Report 2011: Non-Equity Modes of International Production and
Development (United Nations publication, Sales No. E.11.II.D.2).


6 Jonathan D. Ostry and others, “Managing capital inflows: what tools to use”, IMF Staff Discussion
Note, SDN11/06 (Washington, D.C., April 2011).


FDI has become
increasingly important
in the least developed


countries


Table III.1 (cont’d)


Average annual flow


2008 2009 2010 2011a 2012b
1998-
2001


2002-
2007


Economies in transition


Net private capital flows -7.5 51.7 -77.6 -50.2 -23.7 -15.0 12.1
Net direct investment 6.0 19.7 60.4 22.4 9.8 33.6 36.3
Net portfolio investmentc -1.4 6.2 -31.9 -9.9 9.8 6.9 9.7
Other net investmentd -12.0 25.9 -106.1 -62.7 -43.3 -55.6 -33.9


Net official flows -2.5 -9.9 -10.0 49.3 11.5 12.3 18.2
Total net flows -10.0 41.8 -87.6 -0.9 -12.2 -2.8 30.3
Change in reservese -8.5 -82.6 30.0 -11.8 -51.8 -95.9 -83.3


Source: International Monetary Fund (IMF), World Economic Outlook database, September 2011.
Note: The composition of developing countries above is based on the country classification located in the statistical
annex, which differs from the classification used in the World Economic Outlook.


a Preliminary.
b Forecasts.
c Including portfolio debt and equity investment.
d Including short- and long-term bank lending, and possibly including some official flows owing to data limitations.
e Negative values denote increases in reserves.




71International finance for development


In this regard, it has been claimed that the proportion of short-term and vola-
tile flows in FDI has increased, and that part of the growth in FDI flows during the past
two years has been made for the purpose of short-term gains. For example, an international
company might invest in a domestic entity in a developing country. Rather than investing
in greenfield direct investment, that entity uses the funds to buy short-term fixed income
securities that can be easily liquidated. This type of transaction has been particularly prob-
lematic in countries such as China7 that have capital-account regulations that prohibit
foreigners from investing directly in the short-term interest rate market. Nonetheless, they
remain small relative to the total size of FDI flows in China, partly because China has
adjusted its capital-account regulations to address the evasion.


South-South FDI flows have become increasingly important. Such flows proved
particularly resilient during the global crisis of 2008-2009, in part because they were less
dependent on debt financing. Companies from developing and transition economies, es-
pecially Brazil, China, India and the Russian Federation, have become increasingly impor-
tant investors, with their share of global FDI rising from 15 per cent in 2007 to 28 per cent
in 2010. This reflects the strength of their economies, the increasing dynamism of their
corporations and their desire to acquire strategic resources abroad. Over 70 per cent of this
investment is directed towards other developing and transition economies. South-South
FDI is expected to increase in importance over the medium term in line with the grow-
ing strength of emerging economies and the growth of their transnational corporations.8
However, FDI flows to developing countries more generally are likely to be adversely af-
fected in the event of a renewed slowdown in the global economy and, moreover, may be
more volatile than in the past given the growing proportion of short-term and volatile
flows contained within them.


Portfolio flows and cross-border interbank loans


Similar to FDI, a large share of the increase in cross-border lending to developing coun-
tries has been directed towards the rapidly growing economies of the Asia-Pacific region,
especially China and Latin America and the Caribbean, where Brazil has accounted for
a large proportion of international bank loans.9 Moreover, there have also been concerns
specific to regions, such as the Middle East and North Africa, owing to political turmoil,
and Central and Eastern Europe, owing to the heavy reliance of a number of countries on
loans from Western European financial institutions.10


International bank lending has recovered somewhat from its sharp decline in
2009, but is still only about 20 per cent of its pre-crisis level, as discussed in chapter I. The
continuing financial difficulties facing the financial sector make bank lending vulnerable
to any renewed downturn in the global economy, and it remains weighed down by con-
tinuing financial difficulties faced by banks in developed countries. In particular, a liquid-
ity squeeze in European banks, as discussed below, is restricting lending from European
institutions. The impact of this has been particularly acute in the transition economies in
Europe and Asia and has served to restrain lending within these regions.11


7 Yongding Yu, The Management of Cross-Border Capital Flows and Macroeconomic Stability in China
(Penang, Malaysia: Third World Network, 2009); Shari Spiegel, “How to evade capital controls, and why
they are still effective” in Managing Capital Flows for Long-run Development (Boston, Massachusetts:
Boston University Pardee Center for the Study of the Longer Range Future, forthcoming).


8 UNCTAD, Global Investment Trends Monitor, No. 6 (27 April 2011).


9 IMF, World Economic Outlook database, op. cit.


10 World Bank, Global Economic Prospects: Maintaining Progress amid Turmoil, vol. 3 (Washington, D.C.,
June 2011).


11 BIS, BIS Quarterly Review (Basel, Switzerland, June 2011).


While less volatile, FDI has
become increasingly
pro-cyclical


South-South FDI is
becoming increasingly
important




72 World Economic Situation and Prospects 2012


Portfolio equity and bond flows to developing countries are also vulnerable
to sharp shifts in sentiment. Corporate leverage appears to have increased in a number
of emerging market countries in the earlier part of 2011, with weaker firms increasingly
able to access capital markets. A point of concern is that the surge in capital flows into
emerging corporate debt markets has been related to a mispricing of credit and a lack of
due diligence on the part of investors, thereby increasing the vulnerability of emerging
corporate debt markets to external shocks.12 As global risk aversion increased, equity flows
fell significantly in the third quarter of 2011. Although there was less of a sell-off in bond
funds, investors chose to hedge the currency risk implicit in their holdings instead of sell-
ing the bonds, thus causing currencies around the world to weaken.


Carry trade and other derivatives


Most investors that wish to take advantage of high short-term interest rates in emerging
market and developing countries do not actually buy short-term cash instruments, such as lo-
cal currency treasury bills or local commercial paper. Instead, they transact through currency
forwards, futures and options, in what is often called the carry trade.13 The size of carry trades
in emerging market and developing country currencies at any one time is almost impossible
to calculate, but estimates of the size of the market range from $700 billion to as much as $1.5
trillion,14 which would be significantly larger than other forms of capital inflows.


In 1993, the International Monetary Fund (IMF) recommended including
these cross-border derivatives in the current account as a line item under the reporting cat-
egory of “portfolio investment”. In 1998, it further recommended that member countries
report such data as a separate reporting category labelled “financial derivatives”. Many
countries have not done so, however. The United States of America, for example, began to
include derivatives in balance-of-payments data only in 2007.15 In addition, cross-border
derivatives contracts are difficult for regulators to monitor and are often not reported.


The balance of payments measures the amount of currency that flows across
borders, so that the net value of derivative contracts is included in capital-account statis-
tics. Although this measure might be appropriate from an accounting perspective, the net
value is not a good measure of the risk associated with the transaction. In essence, the
carry trade is a leveraged investment. An investor borrows in a currency with low interest
rates, such as the United States dollar, and invests in a currency with higher rates, such as
the Brazilian real, for a specified period. Thus, demand for the Brazilian real and Brazilian
interest rates increases by the notional gross size of the contract. When the global appetite
for risk changes and the carry trade unwinds, enormous pressure will mount on the local
currency. Policymakers should thus monitor cross-border derivatives in conjunction with
capital-account and balance-of-payment data. To do so, they need better surveillance of
derivative products, as discussed below.


12 See, IMF, Global Financial Stability Report: Grappling with Crisis Legacies (Washington, D.C.,
September 2011). The World Bank estimates that corporate borrowers have dominated bonds
with about 80 per cent of year-to-date volume, with most issues coming from companies in China,
Emerging Europe and Latin America (see World Bank, Global Economic Prospects, op. cit.).


13 In a typical forward carry trade, the investor agrees to buy a high yielding currency forward at a
specified date and price, with the price determined by the relative interest rates between the two
currencies.


14 Mike Dola, “Regulators tackle the ‘carry trade’”, The New York Times, 11 February 2010.


15 IMF, IMF Balance of Payments Manual, 5th ed. (Washington, D.C.); IMF, “Financial derivatives”,
BOPCOM98/1/20, paper prepared for the Eleventh Meeting of the IMF Committee on Balance of
Payments Statistics on 21-23 October 1998; Board of Governors of the Federal Reserve System,
Federal Reserve Bulletin, vol. 93 (Washington, D.C., 2007).


The carry trade is not fully
reflected in the official


balance-of-payment
statistics




73International finance for development


International reserves and the
problem of the global imbalances


In response to risks associated with volatile inflows, many countries have used boom peri-
ods to build international reserves. This self-insurance strategy originated in the aftermath
of a number of financial crises in emerging economies in the 1990s and served to protect
those economies during the recent world financial and economic crisis, when a number of
countries used reserves to moderate currency volatility, offset shortages in dollars faced by
local markets and help create fiscal space. For example, in several East Asian economies
reserve accumulation contributed to the policy space countries needed to allow them to
put in place effective economic stimulus packages. While the tapping by a number of
developing countries into their surplus reserves led to a fall in aggregate reserve holdings
during the crisis, the recovery of exports and the subsequent return of capital flows facili-
tated renewed growth of reserve holdings.


Reserve holdings by emerging and developing countries are currently about
$7 trillion, a large proportion of which has been accumulated by developing countries
in Asia, particularly China,16 as discussed in chapter I. However, the strategy of reserve
accumulation can be sustainable only if there is at least one reserve-issuing country large
enough and willing to run ever larger current-account deficits to ensure sufficient liquidity
for global economic activity. These ever rising deficits can erode confidence in the reserve
currency in that they eventually undermine its value, leading to a breakdown of the sys-
tem. This dilemma emerges from the use of a national currency as the main international
reserve currency and is one of the most important medium-term risks in generating global
imbalances.


There are two main paths of reform that are being discussed by a variety of
academics, analysts and policymakers. The first is to have multiple reserve currencies
compete against each other. A multicurrency reserve system fails, however, to resolve the
core deficiencies of the current system for a number of reasons. First, it would require
national currencies, most of which would still be currencies of major industrial countries,
to be used as reserve assets. A group of reserve currency countries would have to run
increasing current-account deficits (or capital-account surpluses) to supply the world with
reserve currencies. It would be particularly difficult for the European countries that are
already restrained in monetary and fiscal policies to offset the contractionary impact of
trade deficits arising from the supply of reserve currencies. Second, and more importantly,
the diversification of reserve accumulation would then come at the cost of exchange-rate
volatility among reserve currencies. Another reason for the undesirability of the multicur-
rency system is that it would not solve the inequity bias of the current system, since most
developing countries would still be investing their savings into reserve assets issued by
developed countries, and thereby transferring resources to them at very low interest rates.
An alternative path is the design of a global currency, which can play the role of a reserve
asset. One possibility is the use of Special Drawing Rights (SDRs) of the IMF.17


The Group of Twenty (G20) has encouraged discussion on reforming the inter-
national reserve system through reforms of the SDR mechanism (but not to the extent of
using SDRs as a reserve currency). There are several reasons for resuming the allocations


16 IMF, World Economic Outlook database, op. cit., table A15.


17 See Bilge Erten, “Allocation of SDRs for development purposes”, background paper for World
Economic and Social Survey 2012 (United Nations publication, forthcoming).


Emerging and developing
countries hold about
$7 trillion in reserves


Self-insurance through
building reserves has
exacerbated global
imbalances




74 World Economic Situation and Prospects 2012


of SDRs. SDRs can be used as an instrument to fund IMF emergency financing during
crises, as discussed below. Sustained SDR allocations could also provide a low-cost alterna-
tive to accumulation of international reserves, and could reduce the need for precautionary
reserve accumulation by providing access to foreign currency liquidity. In other words,
greater use of SDRs could reduce the need for self-insurance by many developing coun-
tries. Second, regular SDR allocations are a potential source of finance since seigniorage
related to additional demand for global currencies accrues to IMF member States. Under
the current quota distribution, more than half of the newly allocated SDRs will accrue
to developed countries. Nonetheless, countries with excess allocations can lend SDRs to
countries in need, thereby leveraging existing SDR allocations. Countries can then ex-
change the SDRs for tradable currencies to meet balance-of-payment obligations.


However, the use of SDRs as direct development finance is somewhat prob-
lematic since fiscal use of allocated SDRs by developing countries is illegal under the
current IMF Articles of Agreement and would require a substantial amendment of these
Articles. One suggestion to address this limitation is for the IMF to use newly allocated
SDRs to buy bonds issued by multilateral banks, which could in turn use the funds to
finance development projects.18 Other solutions envision employing unused SDRs to fi-
nance global public goods, such as through a green fund.


Net financial transfers
The vast majority of global reserves have been invested in low-yielding United States
Treasuries and other sovereign paper, with the effect of transferring financial resources
from the developing to the developed world. Developing countries, as a group, are ex-
pected to have transferred a net amount of financial resources19 of approximately $826.6
billion to developed countries in 2011 (see figure III.1A and table III.2).


The largest net outward transfers are in East and South Asia, reflecting trade
surpluses and high levels of reserve accumulations. Africa and West Asia experienced strong
increases in net outward resource transfers in the first half of 2011, reflecting continued
growth in export revenues of net fuel exporters in both regions, owing to the continued
surge in oil prices. Net outward transfers of countries in Latin America and Caribbean
remained at high levels in line with a relatively stable regional trade performance and
increased reserve accumulation in some countries, such as Brazil. Sub-Saharan Africa was
the only region not to have net outward transfers.


As shown in figure III.1B, most of the net transfers from developing to de-
veloped countries were from upper middle income countries. Net outflows from upper
middle income countries increased by $85 billion in 2011, to $580 billion, reflecting the
continued reserve accumulation in these countries. Net outflows from lower middle in-
come countries increased to $40 billion in 2011, nearly doubling 2010 levels. However,
lower middle income countries receive net inflows of $36 billion, representing a slight
increase in inflows from 2010. Thus, in 2011, the pre-crisis pattern returned; upper middle


18 José Antonio Ocampo, “Reforming the international monetary system”, lecture delivered at the
14th WIDER Annual Lecture held at the United Nations in New York, 9 December 2010. Available
from http://www.wider.unu.edu/publications/annual-lectures/en_GB/AL14/.


19 The net transfer of financial resources measures the total receipts of net capital inflows from
abroad minus total income payments (or outflows), including increases in foreign reserves and
foreign investment income payments. Therefore, when reserves are greater than net capital
inflows, there is a net outflow of financial resources.


Developing countries
transferred $827 billion
in financial resources to


developed countries
in 2011




75International finance for development


Figure III.1A
Net transfers of financial resources to developing economies
and economies in transition, 1999-2011
Billions of dollars


-1000


-800


-600


-400


-200


0


200


1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011a


Source: UN/DESA, based
on International Monetary
Fund (IMF), World Economic
Outlook database, September
2011 and IMF, Balance of
Payments Statistics.
a Partly estimated.


Figure III.1B
Net financial transfers, by income category, 2001-2011


Billions of dollars
100


0


-100


-200


-300


-400


-500


-600


-700
Low-income countries Lower middle income countries Upper middle income countries


Average 2001-2009


2010


2011


Source: UN/DESA, based
on International Monetary
Fund (IMF), World Economic
Outlook database, September
2011 and IMF, Balance of
Payments Statistics.
Note: The pattern differs
significantly from that
reported in World Economic
Situation and Prospects 2011,
because China has moved up
to the group of upper middle
income countries, hence
pushing up net (outward)
financial transfers from that
group of countries and
reducing that of the lower
middle income countries.


Sub-Saharan Africa
(excluding Nigeria
and South Africa)


Least developed
countries


Latin America and
the Caribbean


Africa


Economies in transition


Western Asia


Eastern and
Southern Asia


Developing economies




76 World Economic Situation and Prospects 2012


income countries transferred significant resources to richer nations while continuing with
the accumulation of foreign-exchange reserves as self-protection against new global eco-
nomic shocks, while poorer countries continued to have positive net transfers, albeit at a
low level compared to total global flows.


The continued high volatility in portfolio flows will likely increase the per-
ceived need for self-protection during 2012. Nonetheless, many middle-income countries
have already accumulated large international reserves, and additional accumulation of
reserves can be costly. As discussed above, there is an opportunity cost associated with
buying United States Treasuries as opposed to investing in domestic development. In ad-
dition, to buy reserves, central banks intervene in the domestic foreign exchange market,
buying dollars or other currencies and selling the domestic currency. This has the effect
of increasing the domestic money supply, which can be inflationary. In response, cen-
tral banks often sterilize the inflows through open market or similar operations. This
results in greater demand for local securities, which drives up interest rates. Ironically,
the higher interest rates can then attract even greater amounts of short-term capital flows,
in a continuing cycle. In response, policymakers have been implementing or considering
implementing capital-account regulations to moderate high volatility in capital inflows.


Capital-account management
Capital-account management has recently gained greater acceptance as a prudent policy
measure by the international community. The IMF, which recommended against the use of
capital controls in the 1990s (even though it was in contravention of Article VI of the IMF
Articles of Agreement, which recognizes the sovereign right of member States to control
their capital accounts), has acknowledged that capital flow management can help reduce
the volatility associated with international flows under certain conditions. Indeed, over the
past few years, several countries, including Brazil, Indonesia and Thailand, have introduced
measures to contain the surge in short-term capital flows, as shown in table III.3.


Capital controls can help
mitigate the impact of
volatile financial flows


Table III.2
Net transfers of financial resources to developing economies and economies in transition, 1999-2011


Billions of dollars


1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011b


Developing economies -130.3 -197.5 -165.8 -212.6 -304.3 -382.0 -598.8 -815.4 -890.9 -891.6 -531.9 -659.8 -826.6


Africa 1.2 -31.9 -16.8 -5.9 -16.5 -34.8 -76.1 -108.5 -102.5 -101.8 8.8 -33.1 -68.3
Sub-Saharan Africa
(excluding Nigeria and
South Africa 8.2 2.8 6.8 3.6 6.0 4.4 0.6 -8.6 -7.1 -3.3 36.5 14.7 2.9


East and South Asia -141.5 -126.0 -121.0 -150.6 -178.0 -186.9 -268.7 -393.9 -544.8 -494.7 -422.5 -452.8 -501.5
Western Asia 2.7 -35.3 -30.6 -22.5 -46.2 -76.0 -143.1 -175.6 -137.3 -223.0 -46.1 -120.0 -203.0
Latin America and
the Caribbean 7.3 -4.3 2.5 -33.7 -63.5 -84.3 -110.9 -137.4 -106.4 -72.1 -72.1 -53.9 -53.8


Economies in transition -25.1 -51.6 -32.9 -27.6 -37.5 -62.0 -99.3 -122.3 -99.4 -152.3 -81.3 -135.0 -186.5


Least developed
countriesa 11.4 6.4 9.3 6.2 8.9 6.2 2.5 -6.4 -4.5 -4.4 30.4 13.2 7.4


Sources: UN/DESA, based on International Monetary Fund (IMF), World Economic Outlook database, September 2011 and IMF, Balance of Payments
Statistics.
a Cape Verde graduated in December 2007; hence excluded from the calculations.
b Partly estimated.




77International finance for development


Table III.3
Selected capital account regulations taken by developing countries (since 2009)


Instrument Country Policy Measure Effective Date


Tax measures and
fees


Republic
of Korea


Reintroduced a 14 per cent withholding tax on interest income
and 20 per cent capital gains tax on Korean government bonds
(KTBs) and monetary stabilization bonds (MSBs).


January 2011


Imposed a macroprudential levy of up to 0.5 per cent on banks’
non-deposit foreign currency liabilities.


August 2011


Thailand Removed a 15 per cent tax exemption for foreigners on capital
gains and interest payments earned from investing in domestic
bonds.


October 2010


Brazil Raised tax on fixed-income foreign investment to 6 per cent
(introduced in October 2009 at 2 per cent).


October 2010


Introduced a 1 per cent tax on derivatives transactions which
result in an increase in short currency (dollar) exposure or a
reduction in long currency (dollar) exposure.


October 2011


Peru Increased fee on non-resident purchases of central bank
certificates of deposit (CDs) from 10 basis points to 400 basis
points.


August 2010


Quantitative limits Republic
of Korea


Instituted a cap on banks’ holdings of foreign exchange
derivative contracts (250 per cent of equity capital for foreign
bank branches and 50 per cent for domestic banks).


June 2010


Reduced the limit on currency forward transactions from
125 per cent to 100 per cent of the real transactions being
hedged.


June 2010


Instituted a cap on derivative positions (in response to an
options sell-off on 11 Nov 2010), limiting the number of
speculative options and futures contracts an institutional
investor can hold to a maximum of 10,000 per day (Previously,
institutions could hold 7,500 futures, with no limit on options
contracts).


January 2011


Indonesia Reintroduced a 30 per cent cap on lenders’ short-term overseas
borrowing.


January 2011


Taiwan
Province
of China


Introduced a ban on foreign investors’ placing funds into time
deposits.


November 2009


Reactivated regulation that caps foreign investment in Taiwan
government bonds and money market products at 30 per cent
of investors’ total portfolio. (Previously, the 30 per cent cap had
only applied to debt maturing in less than one year).


November 2010


Minimum
investment periods


Indonesia Imposed a minimum one-month holding period for Bank
Indonesia Certificates (SBIs).


July 2010


Reserve
requirements


Indonesia Raised the reserve requirement ratio for foreign currency
deposits from 1 per cent to 5 per cent (proposed to increase to
8 per cent in June 2011).


March 2011


Brazil Introduced requirement for local banks to deposit 60 per cent
of their short positions in US dollars, interest-free, at the Central
Bank after deducting 3 billion dollars or their capital base,
whichever is smaller.


April 2011


Peru Increased the marginal reserve requirements for short-term
domestic currency deposits to 120 per cent (from 65 per cent)


September 2011


Sources: Institute of International Finance (IIF), “Capital flows to emerging market economies”, IIF Research Note, 24 January 2011; IMF, “Recent
experiences in managing capital inflows—cross-cutting themes and possible policy framework”, 14 February 2011; national central banks and
other agencies.




78 World Economic Situation and Prospects 2012


Countries have a range of policy instruments at their disposal to man-
age cross-border capital flows. Three categories of responses are usually distinguished:
macroeconomic policies, macroprudential measures and other forms of capital-account
management, including capital flow regulations. Capital-account regulations should be
an essential part of a broader counter-cyclical macroprudential risk management of the
domestic financial sector, and should not be viewed any differently than regulation of
domestic risks. Such regulations—which include price and quantity regulations, includ-
ing taxes, reserve requirements, minimum investment periods and quantitative limits on
certain types of cross-border capital transactions—directly target capital flows, whereas
macro-tools focus on overall economic variables and the domestic regulatory framework.


The IMF position has been that capital-account regulations should be employed
only when macroeconomic and prudential policy measures are not sufficient to counter the
negative impact of capital inflows. However, the textbook response of dealing with capital
inflows by letting foreign exchange rates appreciate and slashing fiscal spending is often
inadequate and can have negative side effects. Letting the exchange rate strengthen can
penalize export-oriented sectors, thus impacting growth and development, while fiscal cuts
can be costly, and the slow speed of fiscal decision-making makes it an ineffective policy
tool for dealing with short-term volatile capital inflows. Furthermore, adopting regulations
at an early stage could help limit capital inflows before asset bubbles and other risks to the
economy materialize. Instead, policy measures should target the source of shocks from the
outset, and therefore aim at reducing the volatility of capital flows.


The IMF also contends that countries should let their currencies appreciate to
fair valuation before capital controls are enforced, in order to avoid beggar-thy-neighbour
policies. However, policymakers from developing countries are wary of this rule as it could
impede domestic policy space. This is particularly the case since it is extremely difficult
to gauge when a currency is fairly valued; in fact, one of the reasons that capital-account
regulations are necessary is because the market is not fairly valuing currencies. In addition,
economic costs associated with boom and bust cycles, including increased volatility of
the exchange rate and potential bubbles in sectors of the economy, exist whether or not a
currency is considered over- or undervalued from a theoretical perspective.


Although many economists argue that capital controls should be temporary,
there is a case to be made for permanent regimes, especially given the medium-term
cycles in capital flows discussed above. Since capital flows can change rapidly, policy-
makers may need to be able to react swiftly, which is easier in a permanent regime of
capital-account regulation. Such a permanent regime could be adjusted to the country’s
circumstances. In this way, policies could be re-enacted quickly in a counter-cyclical
fashion, and market actors would not be caught off-guard if capital-account regulations
have to be reintroduced.


Despite renewed interest in capital-account regulations, their effectiveness re-
mains under debate. Most available studies find that capital controls have been effective in
changing the composition of inflows away from short-term debt in many cases.20 However,
the impact on total flows is more ambiguous, with regulations appearing to have been
more successful in some cases than in others. This implies that the design of regulations is
crucial to their success. No one-size fits all for the effectiveness of the alternative tools, and


20 See, for example, Jonathan D. Ostry and others, “Capital inflows: the role of controls”, IMF Staff
Position Note, SPN10/04 (Washington, D.C., February 2010).


As capital flows exhibit
medium-term volatility,


permanent regimes
of management


may be preferable




79International finance for development


a thorough analysis of the unique situation of each country needs to guide the decision-
making over which tools to use. Countries that have a high level of dollarization, such as
Peru, might choose to focus on prudential regulations in the banking system to minimize
currency mismatches, while countries with large domestic local currency markets, such as
Brazil, might choose to implement direct regulations, such as taxes on inflows.


As shown in table III.3, Brazil has initiated a 6 per  cent tax on inflows. In
addition, Brazil has also initiated new measures on cross-border derivatives which seek to
limit speculative positions in the foreign exchange market via a tax on unhedged bets. For
this regulation to work, Brazil needs reliable information, which they ensure by making
the legal enforceability of derivatives contracts depend upon their registration in clear-
ing houses. As such, Brazilian authorities believe that the imposition of the tax will help
them keep better track of derivative positions. Brazil introduced this tax at a low level of
2 per cent, although it reserves the right to increase the tax to up to 25 per cent.


Nonetheless, despite these measures, the Brazilian real devalued by 16 per cent
during the increased global risk aversion of the third quarter of 2011, as discussed in chapter
I. Although policymakers might welcome the weaker currency, the implication is that the
earlier capital-account regulations were not fully effective in reducing volatility. However,
the regulations on derivatives affected only new transactions and were only introduced in
August, when sizable positions were already built in the local markets. In addition, policy-
makers in Brazil acknowledge that a 2 per cent tax is likely not sufficient to reduce inflows
when local yields are still above 10 per cent.


Brazil’s tax on inflows is a form of price control. Many economic analysts tend
to prefer such price controls over quantity controls, such as China’s or India’s ban on short-
term flows. They do so in the belief that price controls are less opaque and more flexible,
a factor considered particularly important in sophisticated markets. In practice, however,
it is difficult to calculate the optimal tax for a price-based mechanism, especially when
information asymmetries exist. Because information asymmetries are particularly acute in
the financial sector, the IMF suggests a rule of thumb with price-based measures prefer-
able in general, and quantity-based measures more appropriate for prudential purposes.21
However, when interest rate differentials are large and/or the market expects strong cur-
rency appreciation, the tax or other price-based mechanism might have to be so high to
be effective as to render its implementation politically infeasible or impractical. Quantity
restrictions could be preferable in such cases.


In an era of financial globalization, it is no longer possible for any individual
country to fully manage cross-border risk by unilateral action. Multilateral cooperation
on capital-account regulations could be an important element of the international fi-
nancial system. In particular, there is some fear that the implementation of measures
to manage capital flows in one country might divert more speculative flows to other
countries. However, developing countries have argued that evidence of negative spillover
effects is limited, and that multilateral coordination of capital-account regulations and
rules would serve only to reduce countries’ policy space. Bilateral and regional coordina-
tion might be an alternative to global rules. In addition, coordination would optimally
include policy actions in the source countries to help reduce flows from the outset. To
do so, however, would require reforms of the international financial architecture and
domestic regulations.


21 Jonathan D. Ostry and others, “Managing capital inflows: what tools to use”, op. cit.




80 World Economic Situation and Prospects 2012


International financial reform
The international community has continued its efforts to reform and strengthen the in-
ternational financial system. These include the introduction of Basel III, and the United
States Dodd-Frank Wall Street Reform and Consumer Protection Act, as well as dis-
cussions on regulations for systemically important institutions. However, most of these
measures are being phased in over a prolonged period of time and, as such, have not had
an impact on the current economic and financial situation, including the risks in the
European banking sector.


The extent of credit risk and insolvency in the European banking system ow-
ing to the European sovereign debt crisis is unclear. Several studies have estimated that
the impact is uneven across the banking sector. A recent IMF analysis found that only a
small number of banks are in the high-risk zone, representing 1 per cent of assets, while
a greater proportion (22 per cent of banks representing 12 per cent of assets) fall into the
second-highest risk zone.22 Nonetheless, the banks that are stronger appear to have been
hoarding cash, which has led to a liquidity squeeze in the interbank market. For example,
most of the €56 billion supplemental long-term refinancing operations (SLTRO) provided
on 26 October 2011 were placed back into the deposit facility, which implies that banks
with surpluses are holding cash rather than lending it on the interbank market.23 Figure
III.2 shows how bank wholesale term funding has collapsed. The fact that issuance of
covered bonds, which have limited credit exposure, has also dropped significantly is a sign
that the drop in funding is the result of a liquidity crisis rather than of solvency issues.


22 IMF, “Global Financial Stability Report”, op. cit.


23 Daniel Davies and Jag Yogarajah, “Liquidity—when it comes to the crunch”, (Paris, France: Exane
BNP Paribas, 7 November 2011).


New reforms of the
financial systems
are being phased


in gradually


Figure III.2
European bank wholesale term funding, debt securities
issued by bank sector borrowers, January-October 2011


Billions of euros


Covered


Unsecured


0


5


10


15


20


25


30


35


Ja
n-


20
11


Fe
b


-2
01


1


M
ar


-2
01


1


A
pr


-2
01


1


M
ay


-2
01


1


Ju
n-


20
11


Ju
l-2


01
1


Au
g-


20
11


Se
p


-2
01


1


O
ct


-2
01


1


Sources: Daniel Davies and
Jag Yogarajah, “Liquidity—


when it comes to the crunch”,
(Paris, France: Exane BNP


Paribas, 7 November
2011); Dealogic.




81International finance for development


As discussed above, banks facing funding pressures often limit intragroup financ-
ing of foreign branches to preserve liquidity, thereby impacting financing for emerging and
other developing countries. This is particularly problematic for developing countries with
large foreign banks, as we saw during the financial crisis. The current strain of the liquidity
squeeze in Europe will likely have a particularly strong impact on Eastern European countries.


More broadly, risks to the international financial system threaten financing
for developing countries, increasing the perceived need for countries to self-insure. Steps
to reduce risks in financial systems in industrialized countries should thus have positive
spillovers on global risk and development. In addition, these new regulations have implica-
tions for the design of developing countries’ domestic financial regulations.


Progress in reforming international financial regulation24


The Basel III standard on bank capital and liquidity


A major step in the reform process has been the introduction of the Basel III framework
for bank capital and liquidity regulation. The Basel Committee on Banking Supervision
issued the Basel III rules text on 16 December 2010, following the endorsement by the G20
leaders at their November 2010 summit. It now needs to be transposed into national law
and applied according to the agreed schedule. The Basel III requirements will be phased
in gradually starting from January 2013 and are to be fully implemented by January 2019.


Basel III is intended to cure several shortcomings revealed by the crisis. It
provides for higher minimum capital requirements (doubling core capital), improved qual-
ity of capital and larger liquidity buffers. In addition, a simple leverage measure of 1 to
30 is introduced as a capital conservation buffer. Along with the traditional micropru-
dential approaches, which focus on the risk of individual banks, Basel III also attempts
to strengthen the macroprudential policy framework. Macroprudential policies aim to
address a system-wide risk by dampening financial system pro-cyclicality and reducing
systemic risk concentrations. One macroprudential tool introduced by Basel III is a sepa-
rate counter-cyclical capital buffer. This buffer will be determined by the relevant regulator
in each jurisdiction according to its perception of the systemic risk that has built up in the
banking system as a result of excess credit growth, and will range from between 0.0 and
2.5 per cent of a bank’s risk-weighted assets, to be held in common equity.


These changes are meant to increase the capacity of banks to better withstand
future shocks. However, several recent studies have suggested that the changes are likely
too small to increase the resilience of the system sufficiently. They suggest that core capital
should be 25 per cent of risk-weighted assets.25 A recent study by the Bank of England,
using fifty years of data, suggests even stronger requirements; it finds that 50 per cent of
risk-weighted assets is an appropriate level of capital adequacy, given the historical fre-
quency and severity of crises.26 Both of these amounts are significantly greater than what


24 For a more detailed discussion and critique of these measures and policy implications for emerging
market countries, see Stephany Griffith-Jones, Shari Spiegel and Matthias Thiemann, “Recent
developments in regulation in light of the global financial crisis: implications for developing
countries”, background paper for the UN/DESA-sponsored conference on “Managing the capital
account and regulating the financial sector: a developing country perspective”, held in Rio de
Janeiro, Brazil, on 23-24 August 2011. Available from http://www.un.org/en/development/desa/
policy/capacity/capital_account/.


25 Ibid.


26 David Miles, Jing Yang and Gilberto Marcheggiano, “Optimal bank capital”. External MPC Unit
Discussion Paper, No. 31 (London: Bank of England, April 2011).


Basel III is a major step in
the reform process


Basel III does not
adequately address
present global risks




82 World Economic Situation and Prospects 2012


is currently envisaged by Basel III. Critics have also pointed out that a leverage ratio of 1
to 30 would not have posed significant problems for most banks before the crisis.


The Basel III liquidity standards require banks to have sufficient high quality
liquid assets to withstand a 30-day stressed funding scenario that is specified by super-
visors. One of the important innovations is to include off-balance-sheet obligations of
the banks. However, the extent to which these measures will increase the resilience of
the financial system cannot yet be gauged, because they will come into force only in
2018. In the meantime, the liquidity coverage ratio has successfully been applied in the
Netherlands, where it has been in force since 2003. Most Dutch banks remained liquid
throughout the crisis and avoided failure, even though many of the banks had high off-
balance-sheet obligations. It is unclear whether the strengthened regulatory framework of
Basel III would have been sufficient to prevent the current liquidity crunch in Europe. To
the extent that there is always a risk of a bank run, in either the wholesale market or the
deposit market, the role of a lender of last resort is necessary to limit liquidity squeezes.
This is somewhat complicated in Europe where the European Central Bank (ECB) is
exclusively tasked with guarding inflation and is not supposed to maintain the health of
the banking system, and individual country central banks cannot print money.


One goal of Basel III is to create a globally consistent and harmonized regula-
tory structure as a way to ensure a level playing field. It is thus considered important to
discourage a competitive race to the bottom and beggar-thy-neighbour policies that might
benefit narrow national interests at the expense of global financial stability. At the same
time, given diverse national structures, the challenge is to strike the right balance between
ensuring an international level playing field and accommodating country differences, in
order not to place an unnecessary burden of adjustment on national financial systems.
Repercussions of Basel III on access to financing for low-income countries should also
be taken into account, including possible adverse impacts on trade finance, since Basel
rules do not give credit to the collateral used to secure trade financing. Similarly, applying
Basel III to developing country banks could result in reduced domestic long-term lending.
This may be counteracted, however, through changes in domestic regulatory systems in
developing countries, as discussed below.


Regulation of systemically important financial
institutions and the shadow banking system


The 2008-2009 global financial crisis underscored the need to put in place additional
measures to reduce the likelihood and the severity of problems emerging at systemically
important financial institutions. Accordingly, in addition to the Basel III standards, an
international effort is under way to reduce the probability of failure for such institutions
or, in the event of a failure still occurring, to limit its impact on the financial system as
a whole.


The Financial Stability Board (FSB) has developed a set of policy measures to
address systemically important financial institutions (SIFIs), particularly globally systemi-
cally important financial institutions (G-SIFIs).27 The implementation of the set of policy
measures and the timeline for their implementation were endorsed by the G20 leaders at
their Cannes Summit in early November 2011.


27 Financial Stability Board (FSB), “Policy measures to address systemically important
financial institutions” (Basel, Switzerland, 4 November 2011), available from http://www.
financialstabilityboard.org/publications/r_111104bb.pdf.


The Financial Stability
Board has developed a
framework to address


globally systemically
important financial


institutions




83International finance for development


A key element of the measures is that SIFIs should have a loss-absorbing capac-
ity beyond the general Basel III, including an additional 1.0-2.5 per cent capital versus
risk-weighted assets, to be held in common equity, depending on a bank’s systemic impor-
tance. For banks facing the highest surcharge, an additional loss absorbency of 1 per cent
could be applied. The additional capital charges are also thought to level the playing field
by reducing too-big-to-fail competitive advantages in funding markets. The FSB and the
Basel Committee on Banking Supervision have identified an initial group of 29 G-SIFIs,
which will be updated annually based on criteria such as size, interconnectedness and
substitutability. However, the additional 1.0-3.5 per cent is still significantly below what
many studies have determined as sufficient levels of capital. Nonetheless, the attention to
the issue and the additional requirements constitute important steps in reducing the risks
associated with being “too big to fail”.


The measures put forth by the FSB further aim to establish more intensive and
effective supervision of all SIFIs. Moreover, the FSB defined key features and instruments
that all national resolution regimes should have to enable authorities to resolve failing
financial firms in an orderly manner and to determine requirements for resolvability as-
sessments and for recovery and resolution planning for G-SIFIs. The implementation of
these measures will begin in 2012, with full implementation targeted for 2019, a relatively
long phase-in period, which opens up the risk that rules will not be implemented consist-
ently across countries.


The FSB intends to complement these policy measures with stronger interna-
tional standards for core financial market infrastructures to reduce contagion risks when
failures occur. Another important issue is integrating into the regulatory framework the
so-called shadow banking system, for instance, credit intermediation through non-bank
channels. In this context, there is a need to ensure that tighter regulatory rules on banks
do not provide incentives for financial institutions to shift their activities to unregulated
areas. The challenge is to establish an appropriate definition of shadow banking and out-
line possible regulatory measures to address the risks posed by this sector. In October
2011, the FSB set out principles for the monitoring of shadow banking,28 which calls
on the relevant authorities to first assess the broad scale and trends of non-bank credit
intermediation in the financial system. Based on this assessment, authorities should nar-
row their focus to those types of non-bank credit intermediation that have the potential
to pose systemic risks, by focusing in particular on those involving key risk factors, such
as maturity transformation, liquidity transformation, imperfect credit risk transfer and/or
leverage. Authorities should then assess the potential impact of the severe distress or failure
of certain shadow banking entities on the overall financial system.


In addition, the FSB defined five specific areas for which recommendations
for further regulatory action will be developed in 2012: banks’ interactions with shadow
banking entities, money market funds, other shadow banking entities, securitization and
securities lending and repurchase agreements. In addition to the key areas outlined, the
FSB is studying other regulatory initiatives, including regulations for over-the-counter
derivatives, rating agencies, alternative investment vehicles, consumer finance protection
and financial market infrastructures.


28 FSB, “Shadow banking: strengthening oversight and regulation” (Basel, Switzerland, 27 October
2011), available from http://www.financialstabilityboard.org/publications/r_111027a.pdf.


The FSB is also developing
a regulatory framework
for the shadow banking
system




84 World Economic Situation and Prospects 2012


Financial stability and regulation in emerging
economies and developing countries


There are several lessons that policymakers in developing and emerging markets can draw
from these reforms for the design of domestic regulations. As Basel III was designed for
sophisticated financial markets, it is not clear that all of the measures in the agreement
are appropriate for developing countries. In particular, reforms to banking regulation also
need to take into account any impact they may have on growth and access to credit, as
well as on stability.


Policymakers in developing countries can choose to implement the elements
of these agreements that best suit their needs. For example, it might make sense for poli-
cymakers to integrate several of the ideas underlying Basel III—such as counter-cyclical
buffers, liquidity ratios, increase in the quantity and, especially, the quality of core capital,
adapted to local circumstances—into national regulatory frameworks. A case may even
be made for countries to accelerate the implementation of Basel III suggestions onto a
schedule that is quicker than the gradual one of Basel itself in areas that would be particu-
larly relevant to their financial systems (such as, for example, counter-cyclical regulation).
Policymakers should also engage in emergency planning to address the failure of large
international banks operating in the country. Requiring banks to have subsidiaries, rather
than branches, in the local market can help in this area. Alternative measures such as
public development banks and directed credit could also be employed to improve access
to credit.


More broadly, reforming and improving financial regulation in emerging econ-
omies and developing countries is an important part of the global reform agenda to pro-
mote the mobilization of resources, reduce risks and promote financing for development.


Global liquidity mechanisms: current debates
and the need for further reform


An effective global financial safety net is an important backstop for the preservation of
global economic and financial stability. Currently, countries rely on a hybrid system of
financial safety, combining reserve accumulation, bilateral agreements and regional and
multilateral mechanisms to cope with systemic crises.


The international financial safety net was strengthened during the recent
crisis and its aftermath. In 2010, the IMF increased the duration and credit available
under the existing Flexible Credit Line, an insurance option for countries with very strong
policies and economic fundamentals, and established a new Precautionary Credit Line.
The Precautionary Credit Line, a form of contingency protection, is designed for those
countries that do not qualify for the Flexible Credit Line, but that have only moderate
vulnerabilities. Unlike the Flexible Credit Line, the Precautionary Credit Line features
ex post conditionalities focused on reducing any remaining vulnerabilities identified in
the qualification assessment. G20 leaders, at their summit in November 2011, expressed
support for the IMF in putting forth a new Precautionary and Liquidity Line (PLL) to
provide, on a case-by-case basis, increased and more flexible short-term liquidity to coun-
tries with strong policies and fundamentals facing exogenous shocks.


Resources available to the IMF to carry out its lending activities have in-
creased significantly. The Fourteenth General Review of Quotas was completed in


Developing countries
can draw lessons from
international financial


reforms


Countries rely on a hybrid
mechanism to cope with


systemic crises




85International finance for development


December 2010, with a decision to double IMF quota resources to approximately $750
billion, and is awaiting ratification by the membership. Borrowing arrangements with
member countries and central banks have also been enhanced. The expanded and more
flexible New Arrangements to Borrow, with a total borrowing capacity of about $580
billion, became operational in 2011. However, discussions to further enhance IMF re-
sources have stalled.


In order to ensure the capacity of the IMF to provide large-scale liquidity
support in the future, there are proposals to further enlarge its resource base, such as by
issuing SDRs, as discussed earlier. The G20 is considering enhancing the SDR basket to
include additional currencies and potentially increasing allocations of SDRs. The current
requirement for inclusion in the basket, as set out in the IMF Articles, is that a currency
be “freely usable”, implying widely used and widely traded. This requirement was imple-
mented only in 2000, and discussions are currently under way for including alternative
criteria, tailored explicitly to the reserve asset characteristics of the SDR, to be based on
three key characteristics: liquidity in foreign exchange markets; “hedgeability”; and avail-
ability of appropriate interest rate instruments. However, this view has been challenged
by some developing countries, which point out that the basket has included non-tradable
currencies that did not meet these criteria in the past.


While the cooperative efforts during the crisis have strengthened the global
financial safety net, important issues remain regarding the sufficiency and composition of
international liquidity support. Indeed, the crisis has highlighted the need for large liquid-
ity buffers to deal with fast and sizeable capital market swings. This requires a further
strengthening of the multilateral capacity to cope with shocks of a systemic nature. In this
regard, it has been stressed that in the recent crisis, the bulk of the needed liquidity was
provided through ad hoc arrangements deployed on a one-off basis by key central banks.
It has also become evident that uncertainties about the availability and functioning of
financial safety nets can impose significant costs.29


There are a number of suggestions on how to make the global financial safety
net more effective and predictable. An ambitious proposal is to develop the IMF as an
international lender of last resort that would provide access to liquidity when no other
lender is willing to lend in sufficient volume to deal effectively with a financial crisis.30
Countries could qualify for access to this facility through regular Article IV IMF surveil-
lance without additional conditions. The liquidity would need to be largely provided by
countries issuing reserve currencies, which would, however, impose far-reaching obliga-
tions on major central banks to grant access to liquidity when the facility is triggered.
The IMF itself is exploring related options to set up a permanent mechanism to provide
liquidity in systemic crises in conjunction with bilateral and regional liquidity support
arrangements.31


A key element in strengthening the global financial safety net is closer coopera-
tion with regional and subregional mechanisms. Regional financial arrangements can play
an important role in preventing and mitigating financial crises and strengthening the global


29 See, “Assessing the agenda for economic policy cooperation”, speech by John Lipsky, IMF First
Deputy Managing Director, at the Conference on Macro and Growth Policies in the Wake of the
Crisis, Washington, D.C., 7 March 2011, available from www.imf.org.


30 See, for instance, Eduardo Fernández-Arias and Eduardo Levy-Yeyati, “Global financial safety nets:
where do we go from here?”, IDB Working Paper Series, No. IDB-WP-231 (Washington, D.C.: Inter-
American Development Bank, November 2010).


31 IMF, “The Fund’s mandate—the future financing role: reform proposals”, Washington, D.C., 29 June
2010, available from www.imf.org.


SDR issuance could be used
to strengthen the global
financial safety net


Greater coordination
is needed between
multilateral and regional
financial safety net
mechanisms




86 World Economic Situation and Prospects 2012


financial safety net. Major regional arrangements are the Arab Monetary Fund (AMF), the
Chiang-Mai Initiative (CMI), assistance facilities within the European Union (EU) and
the Latin American Reserve Fund (FLAR). Positive experiences with regard to regional
balance-of-payments assistance facilities exist particularly in Latin America. The FLAR is
the issuer with the highest rating in Latin America and has been contributing to regional
financial stability by providing member countries with crisis liquidity. In other regions,
reserve funds and financial assistance facilities are currently being enhanced. In Europe,
the European Financial Stability Facility was created in 2010 as a vehicle to fund assistance
to member countries in financial distress; it is to be succeeded by the permanent European
Stability Mechanism (ESM) in 2013. In Asia, the Association of Southeast Asian Nations
(ASEAN)+3 countries32 in 2010 enhanced the Chiang-Mai Initiative from a bilateral swap
network to a multilateral reserve pool arrangement so as to strengthen the region’s capacity
to address balance-of-payments and short-term liquidity difficulties. Member countries also
introduced a voting procedure for the disbursement of funds. Most of these mechanisms
have provided crisis liquidity to member States during the recent economic and financial
crisis, partly in conjunction with IMF programmes.


International development
cooperation and official flows


Official development assistance


Official development assistance (ODA) from member countries of the Development
Assistance Committee (DAC) of the Organization for Economic Co-operation and
Development (OECD) reached a record level of $128.7 billion as at the end of 2010 (see
figure III.3). This accounts for 0.32 per cent of DAC members’ combined gross national
income (GNI). The largest increases in real terms in ODA between 2009 and 2010 were
recorded by Australia, Belgium, Canada, Japan, the Republic of Korea, Portugal and the
United Kingdom of Great Britain and Northern Ireland. 33


However, aid flows remain insufficient and aid delivery has been pro-cyclical
and volatile. Global aid delivery remains far below the United Nations target of 0.7 per cent
measured as the ratio of net ODA to donor country GNI. Only five countries (Denmark,
Luxembourg, the Netherlands, Norway and Sweden) have met or exceeded that target.
For DAC donors as a whole, however, aid flows fell $18 billion short of the $127 billion (in
2004 prices and exchange rates) pledged for 2010 at the 2005 Gleneagles Group of Eight
(G8) Summit. The shortfall in aid to Africa is an even larger percentage. At Gleneagles,
donors pledged to increase ODA to Africa by $25 billion per year, yet Africa had only
received an additional $11 billion on an annual basis by the end of 2010. DAC member
countries’ ODA to the least developed countries (LDCs) rose from 0.05 per cent (or $12
billion) of their aggregate GNI to 0.10 per cent (or $37 billion). Again, this level of ODA
is still well below the United Nations target of 0.15-0.20 per cent to be reached by 2015. As
of 2009, only seven OECD DAC donors (Belgium, Denmark, Ireland, Luxembourg, the


32 Ten members of ASEAN (Brunei Darussalam, Cambodia, Indonesia, the Lao People’s Democratic
Republic, Malaysia, Myanmar, Philippines, Singapore, Thailand and Viet Nam) and China, Japan
and the Republic of Korea.


33 The data analysis draws heavily on the MDG Gap Task Force Report 2011: Time to Deliver (United
Nations publication, Sales No E.11.I.11), available from http://www.un.org/en/development/desa/
policy/mdg_gap/index.shtml.


ODA peaked at
$128.7 billion


in 2010…


…but fell well short
of commitments




87International finance for development


Netherlands, Norway and Sweden) had exceeded the upper bound of the United Nations
target and two donors (Finland and the United Kingdom) had surpassed the lower bound
of the target. While country programmable aid to the majority of LDCs is projected to
increase by a total of $2.3 billion from 2009 to 2012, 13 countries are likely to face a
reduction of about $0.8 billion, with virtually no growth projected for 2012.


The 2010 Millennium Development Goals (MDGs) Summit, recognizing the
shortfalls in ODA delivery, reiterated the critical importance of fulfilling all ODA com-
mitments and encouraged donors to establish specific timetables to reach their pledge
targets. Similarly, the May 2011 Istanbul Programme of Action for LDCs called upon
donor countries to implement their ODA commitments to LDCs by 2015 and to consider
further measures to increase the availability of resources for the most disadvantaged coun-
tries. However, the short- and medium-term forecast for increasing ODA looks very un-
certain. Given the fragile recovery in developed countries and the possibility of a double-
dip recession in Europe, most donors plan to increase aid over the coming three years at a
much reduced pace. Whereas ODA from the 15 EU countries had increased slightly from
0.44 per cent of their combined GNI in 2009 to 0.46 per cent in 2010, the ongoing fiscal
crises in Greece, Ireland, Italy and Spain have already translated into significant drops in
their ODA (figure III.4). According to a recent OECD survey, country programmable
aid will grow at 2 per cent per year between 2011 and 2013, compared to the average of
8 per cent per year over the past three years.


On the positive side, grants and the grant element of concessional loans have
increased over time, especially in aid directed towards LDCs, their weight having reached
99.3 per cent in 2008-2009, compared to the 96.1 per cent of aid to all recipients. Also,
84 per cent of bilateral aid was classified as untied by 2009, although that share drops to
70 per cent with the inclusion of technical cooperation and food aid.


ODA flows are expected to
decelerate in the coming
three years


Figure III.3
ODA growth rate per annum, 2000-2013


Percentage


World


Africa


40.0


30.0


20.0


10.0


0.0


-10.0


-20.0


-30.0


-40.0


20
00


20
01


20
02


20
03


20
04


20
05


20
06


20
07


20
08


20
09


20
10


20
11


-
20


13
a


Source: OECD-DAC aid
statistics, 2011, available
from http://www.oecd.
org/document/29/0,3746,
en_21571361_44315115_
47519517_1_1_1_1,00.html.
a UN/DESA projections.




88 World Economic Situation and Prospects 2012


The allocation of aid remains unequal. As of 2009, the top 10 ODA recipients
received one fourth of all aid; in 2000, these same countries absorbed about 13 per cent
of the total. This suggests that aid concentration persists despite the fact that favoured aid
recipients change over time.


The current pattern of aid allocation illustrates the difficulties donors face in
meeting multiple priorities in an environment of weakening growth in their aid volume,
a situation which, in turn, poses the threat of overlooking critical development needs of
the recipient countries. While aid is not the only source funding productive investment,
the contribution of aid-financed, productivity-enhancing public investment in develop-
ing countries continues to be essential, especially in the LDCs. However, a background
study for the 2012 United Nations Development Cooperation Forum (DCF) found that
the proportion of aid funding for economic infrastructure in LDCs has hardly changed
(4.0 per cent in 2002 to 4.1 per cent in 2009). Furthermore, LDCs with relatively low aid
dependence (that is, whose aid receipts are less than 9.2 per cent of their GNI) were the
only programme country grouping that received a lower proportion of aid for economic
infrastructure in 2009 (0.9 per cent) than in 2002 (1.8 per cent).34


The shortfalls in meeting aid commitments have led to renewed calls to
strengthen further the follow-up processes on development cooperation by improving ex-
isting global monitoring and evaluation mechanisms and exploring new modalities, such
as international peer reviews. The DAC adopted, in April 2011, a “Recommendation on
Good Pledging Practice”, advising its members to ensure clarity by specifying in their


34 See, “Trends in international financial cooperation for LDCs”, background study for the 2012
Development Cooperation Forum, draft of 29 April 2011, p. 27, available from http://www.un.org/
en/ecosoc/newfunct/pdf/ldc_study-executive_summary_en.pdf.


Figure III.4
EU-15 ODA growth rate per annum, 2009-2010


Percentage
40.0


30.0


20.0


10.0


0.0


-10.0


-20.0


Au
st


ria


Be
lg


iu
m


D
en


m
ar


k


Fi
nl


an
d


Fr
an


ce


G
er


m
an


y


G
re


ec
e


Ire
la


nd Ita
ly


Lu
xe


m
bo


ur
g


N
et


he
rla


nd
s


Po
rt


ug
al


Sp
ai


n


Sw
ed


en


U
ni


te
d


Ki
ng


do
m


8.8


19.1


4.3
6.9 7.3


9.9


-16.2


-4.9
-1.5 -0.3


2.2


31.5


-5.9 -7.1


19.4


Source: OECD-DAC aid
statistics, 2011, available


from http://www.oecd.org/
document/35/0,3746,


en_2649_34447_47515235_1
_1_1_1,00.html.




89International finance for development


pledges all parameters relevant to the assessment of the pledges. Related topics were
discussed at the High-level Dialogue on Financing for Development of the General
Assembly, held in New York from 7 to 9 December 2011, and at the preparatory meetings
for the 2012 DCF. Donor States, recipient countries and other relevant stakeholders also
met for the Fourth High-Level Forum on Aid Effectiveness (Busan, Republic of Korea,
29 November-1 December 2011) to reassess the aid effectiveness agenda.


In the run-up to the Fourth High-Level Forum on Aid Effectiveness, OECD-
DAC conducted an online survey of the priorities and ideas of Governments, donors and
non-State actors in over 80 developing countries.35 Alongside calls for the full imple-
mentation of the Paris Declaration, the results of the survey called for broadening the
agenda to consider more actors, additional sources of finance, and non-aid dimensions of
development effectiveness.


The agreement reached by the High-Level Forum in Busan stressed the impor-
tance of domestic ownership, greater cooperation between developing countries, improved
domestic institutions, South-South cooperation, domestic resource mobilization, and the
role of the private sector. Specific commitments in the agreement were made on improving
standards for transparency and implementing a common standard for the electronic pub-
lication of information on resources by 2015. However, donors did not make new commit-
ments in other areas, such as aid predictability, improving efficiency or untying aid. For
example, those donors who made commitments on aid predictability in the Accra Agenda
reaffirmed those commitments, but other actors agreed only to aim to provide developing
countries with timely and relevant information on their intentions in this area. Donors
agreed to accelerate efforts to address insufficient resources by agreeing on principles to
guide actions by the end of 2012.


The 2012 DCF will provide an important opportunity to review the issues
and the recent trends in international development cooperation, including the coherence
of national and international aid efforts and a burgeoning number of potential additional
sources of aid, so as to best align aid policies with national development strategies. The
debate and activities under the DCF complement those of the Paris and Accra initiatives,
and include the second survey on mutual accountability between donors and programme
countries and aid transparency at the country level, undertaken with the United Nations
Development Programme (UNDP). The DCF is also exploring ways to strengthen devel-
oping country policy space and their capacity to monitor and manage results, as well as
mutual accountability for development cooperation.


South-South cooperation


ODA from DAC members is increasingly complemented by other programmes of assis-
tance from developing countries and economies in transition. South-South cooperation
has helped to meet certain gaps in assistance provided by Northern donors, particularly
in the area of infrastructure, and has been seen as relatively predictable, more flexible and
responsive to national priorities.36 These flows were estimated to have reached $7 billion in
2009, although this is believed to grossly understate the total extent of South-South coop-


35 See Organization for Economic Cooperation and Development (OECD) Working Party on Aid
Effectiveness, “What do partner countries want from HLF-4? Results of the online consultation”, 22
February 2011.


36 “Trends in international financial cooperation for LDCs”, op. cit., p. 26.


South-South cooperation
has been seen as more
reliable and flexible




90 World Economic Situation and Prospects 2012


eration. A study for the World Bank estimated that non-DAC official assistance was in the
range of $12 billion to $15 billion in 2008.37 Another study undertaken for the DCF has
estimated that South-South cooperation flows reached $15 billion in 2008, an increase of
78 per cent since 2006. In recognition of the growing importance of South-South aid, the
DAC Working Party on Aid Effectiveness hosted a Task Team on South-South Cooperation
comprising Governments from the North and the South, regional organizations and civil
society. The DAC formalized its efforts to forge a global partnership with other key players
by issuing, in May 2011, a statement calling for open dialogue without preconditions.


Innovative sources of finance


Innovative sources of development finance (IDF) aim to raise financing for development
from sources other than central Government budgets in the developed world, to provide
stable and predictable funding sources and to address gaps in the current aid architecture
(such as financing for the provisioning of global public goods).


There has been considerable progress in innovative financing mechanisms
since the Monterrey Consensus, although their overall contributions are still modest.
During the period 2002-2010, based on the OECD classification, innovative financing
mechanisms contributed $5.5 billion to development finance for the health sector and $31
billion for climate change and the environment, the latter mostly from carbon emissions
trading. Although innovative financing should supplement and not be a substitute for
traditional sources of financing, most of the $5.5 billion raised for the health sector is cur-
rently counted as ODA. The resources that have not counted as ODA amounted to only
$0.2 billion of non-government contributions, although even these non-ODA resources
may eventually be reported as ODA when they are disbursed.38 Of the $31 billion raised
for climate change and the environment, most represented private financial and invest-
ment flows and were, therefore, classified as non-ODA.39


Given the tremendous financing needs of developing countries and the un-
predictability of existing aid flows, ways to expand innovative sources of development
financing should be explored further and, where appropriate, expanded to complement
traditional ODA. Delivery mechanisms and the allocation of aid flows need to be strength-
ened so that such resources can be provided on a stable, predictable and voluntary basis.
Harmonization of fragmented monitoring and evaluation mechanisms is needed to reduce
transaction costs. There is also a need for independent monitoring and evaluation at the
international level to assess the delivery, allocation and impact of innovative financing on
development outcomes.


37 Penny Davies, “A review of the roles and activities of new development partners”, CFP Working
Paper series, No. 4 (Washington, D.C.: Concessional Finance and Global Partnerships, World Bank,
January 2010).


38 United Nations, “Report of the Secretary-General on innovative mechanisms of financing for
development”, 1 September 2011, A/66/334.


39 There is considerable divergence between the OECD and the World Bank classifications regarding
what constitutes innovative financing, and estimates vary as a result. For further details, see
United Nations, “Report of the Secretary-General on innovative mechanisms of financing for
development”, ibid.


The overall contributions
of innovative financing


mechanisms are still modest




91International finance for development


Developing country debt relief40


The rise in public expenditure and decreased revenue resulting from the global crisis has
led to increased fiscal deficits and borrowing in many developing countries. Across regions,
20 countries remain at high risk of or are already in debt distress.41 In 2010, 60 countries
maintained public debt-to-GDP ratios over 40  per  cent (17 low-income countries, 22
lower middle income countries and 21 upper middle income countries).42


Yet, despite an 8 per cent increase in nominal external debt in 2010, the re-
covery in growth and exports of many developing countries has led to an improvement in
debt indicators.43 The ratio of external debt to GDP decreased from 23.7 per cent in 2009
to 21.6 per cent in 2010. Estimates for the ratio of external debt service to exports of goods
and services for 2010 also show a return to pre-crisis levels for all income groups, reaching
6.5 per cent in low-income countries, 19 per cent in lower middle income countries and
35 per cent in upper middle income countries, as shown in figure III.5.


In many countries, fiscal deficits have been partly financed through rising
domestic debt, which increased to 3.7  per  cent of GDP for low-income countries and
4.5 per cent for middle-income countries in 2009. Owing to the economic recovery, how-
ever, fiscal deficits decreased slightly in 2010 to 3.6 per cent and 3.7 per cent in low-income
and lower middle income countries, respectively. Upper middle income countries have not


40 This section’s analysis also draws on the MDG Gap Task Force Report 2011: Time to Deliver, op. cit.


41 IMF, “List of LIC DSAs for PRGT-eligible countries, as of 7 October 2011”, available from www.imf.
org/external/pubs/ft/dsa/dsalist.pdf.


42 Based on IMF, World Economic Outlook database, April 2011.


43 Ibid.


The recovery in growth has
led to an improvement
in debt indicators


Figure III.5
External debt service-to-exports ratio, 2005-2010


Percentage


0


10


20


30


40


50


2005 2006 2007 2008 2009 2010


All low- and middle-
income countries


Low-income countries


Lower middle
income countries


Upper middle
income countries


Source: International
Monetary Fund (IMF) World
Economic Outlook, April 2011
database.
Note: The debt service
recorded refers to actual
payments.




92 World Economic Situation and Prospects 2012


yet recovered the surplus they exhibited until 2008, with a deficit of 3 per cent of GDP in
2010 compared to a surplus of 1 per cent in 2006-2008. The recovery has been uneven,
with some countries and regions still coping with large fiscal deficits, especially given the
additional shocks of higher food and energy prices.


The Heavily Indebted Poor Countries (HIPC) Initiative, together with the
Multilateral Debt Relief Initiative (MDRI), had reduced the debt of 36 post-decision-point
heavily indebted poor countries44 by over 80 per cent by the end of 2010.45 From 1999
to 2010, the aggregated debt-service payments of the 36 post-decision-point countries fell
from 18 per cent of exports to 3 per cent, and the present value of debt to GDP declined
from 114 per cent to 19 per cent. The fiscal space created by the reduced debt burden has
been used, in part, to increase spending for poverty reduction. Related expenditures were
projected to have increased from 44 per cent of revenue in 2001 to 57 per cent of revenue
in 2010.46


The main debt sustainability monitoring instruments—the joint World
Bank-IMF Debt Sustainability Framework for low-income countries and the IMF Debt
Sustainability Analysis (DSA) for market access countries—are currently under review.
Modernizing the framework for fiscal policy and public debt sustainability analysis (DSA)
has become necessary, particularly in the light of the recent crisis and rising sustainability
concerns in some advanced economies. While recognizing the inherently challenging na-
ture of such analysis, a recent IMF paper recommended that the DSA should be improved
through a greater focus on the realism of baseline assumptions, the level of public debt
as one of the triggers for further analysis, analysis of fiscal risks, vulnerabilities associated
with the debt profile and broader coverage of fiscal balance and public debt.47 It also
proposes to move to a risk-based approach to DSAs for all market access countries, such
that the depth and extent of analysis would be commensurate with concerns regarding
sustainability, with a reasonable level of standardization.


In addition to these improvements, it remains crucial that future DSA analysis
pay heed to the total liability structure of public and private debt, domestic and exter-
nal, including contingent liabilities in the financial sector, as well as the purpose and
cost-benefit analysis of loans to be taken into account when gauging debt sustainability.
Further measures should be taken to improve the data availability and reliability in report-
ing procedures. Debt problems often occur due to natural disasters, international financial
volatility and other exogenous shocks, even when countries have good economic policies
and strong debt management. Structural vulnerabilities to shocks can therefore be as im-
portant as policy and institutional quality.


The European debt crisis has highlighted the lack of a legal framework for
sovereign debt restructuring for countries in debt distress. In general, without a legal
framework, sovereign debt restructuring risks being incomplete, drawn out, chaotic and
costly. The uncertainty surrounding the process adds risk to the global financial system;


44 The number of Multilateral Debt Relief Initiative beneficiary countries is 32, excluding 4 interim
heavily indebted poor countries.


45 World Bank, “HIPC At-A-Glance Guide (Spring 2011)”, (Washington, D.C.), available from http://
www.worldbank.org/economicpolicyanddebt.


46 International Development Association (IDA) and IMF, “Heavily Indebted Poor Countries (HIPC)
Initiative and Multilateral Debt Relief Initiative (MDRI): Status of implementation”, 14 September
2010.


47 IMF, “Modernizing the framework for fiscal policy and public debt sustainability analysis”,
(Washington, D.C.: IMF Fiscal Affairs Department and Strategy, Policy, and Review Department,
5 August 2011).


The HIPC Initiative and
MDRI has reduced the debt


of 36 countries by over
80 per cent


The debt sustainability
frameworks are


under review


The European debt crisis
has highlighted the lack


of a legal framework
for sovereign debt


restructuring




93International finance for development


this risk has been cited as one of the reasons why countries feel the need to build reserves.48
A sovereign bankruptcy framework, with a fair arbiter, could thus be an important element
in reducing global risk.


In addition, current debt relief and restructuring approaches have not paid suf-
ficient attention to basic growth requirements and the expansion of policy space genuinely
needed to overcome debt distress. The Paris Club of official creditors’ arrangement calls
into question a process in which an ad hoc committee of creditors passes judgement on
debtor country obligations. The share of creditors that are members of the Paris Club in
total debt has become relatively small, owing to increased borrowing from multilateral,
private sector and emerging market creditors and earlier debt-reduction operations pro-
vided by the Paris Club. Paris Club lenders accounted for 20 per cent and 13 per cent of
the debt for low-income and lower middle income countries in 2009, while their share for
upper middle income countries was only 2 per  cent.49 Since flows from non-Paris Club
creditors are on the rise, new modalities may be needed to deal with problems in debt owed
by emerging economies and developing countries to non-Paris Club creditors. In addition,
the legal basis for private and official non-Paris Club creditors to provide treatment compa-
rable to that of the Paris Club is weak and non-binding.


There are also issues related to the transparency and efficiency of the process,
such as problems in debt data reconciliation and the interest rate at which debt reschedul-
ing is carried out. Furthermore, there are possible conflicts of interest between the role of
the IMF as a preferential creditor in official debt restructuring, on the one hand, and its
role in assessing the financing gap to be filled by the Paris Club, on the other. There are
also numerous other conflicts of interest in the debt restructuring process that are difficult
to resolve with some form of adjudication.


The outcome document of the 2010 MDG Summit called for the considera-
tion of an enhanced approach to debt restructuring, but no action has been taken so far.
The establishment of a more permanent debt-restructuring machinery that would invite all
creditors to deal simultaneously and comprehensively with a debtor country’s difficulties,
as needed, could resolve many of the shortcomings in the existing system. An interna-
tional mechanism could be empowered to adjudicate disputes if informal negotiations fail.
Other difficulties that it could address pertain to the delay and attendant high costs in
finding a resolution, as well as the lack of comprehensiveness in dealing with all liabilities.
The system needs to be fairer and to be able to work out debt problems in a more timely
and effective manner. Going forward, the practical options for enhancing the financial
architecture for debt restructuring could be discussed at the United Nations with the
participation of all relevant stakeholders from the official and private sectors.


In more general terms, risk in the international financial system threatens fi-
nancing for development and has led to a build-up in reserves and a worsening of global
imbalances. Reforms of the international system are necessary in order to secure financing
and enable development.


48 Barry Herman, José Antonio Ocampo and Shari Spiegel, Overcoming Developing Country Debt
Crises (New York: Oxford University Press, April 2010).


49 See Paris Club, available from http://www.clubdeparis.org/; and IMF, World Economic Outlook
database, April 2011, op. cit.






95


Chapter IV
Regional developments
and outlook


Developed market economies: recovery
weakens with ominous overtones


Growth in the developed market economies is slowing and the risks of recession have
increased dramatically. The post-recession recovery was already weak, which is typical of
recoveries following financial crises where bank lending is constrained as balance sheets
are repaired and consumers increase savings rates to make up for large losses in wealth and
high levels of debt. Due to the loss of revenue and increased expenditures incurred, the
recession also left Governments with greatly elevated levels of budget deficits and debts
that have now led to considerable pressure for budget consolidation in most countries.
High levels of unemployment in many developed countries are a most bitter legacy of
the recession. These have hardly budged since the onset of the recovery, and threaten to
become entrenched.


The recovery to date has been heavily dependent on external demand emanat-
ing from the emerging markets and the remnants of fiscal and monetary stimuli enacted
during the recession. Headwinds began to emerge as oil prices spiked early in the year, the
multifaceted disaster in Japan disrupted global manufacturing supply lines and demand
from emerging markets began to decelerate. The largest shock, however, was the emer-
gence of the sovereign debt crisis in Europe. The crisis is having multiple negative impacts
on economic activity. It has forced affected countries to adopt extreme fiscal tightening
programmes that have pushed them close to or into recession and generally increased
pressure for fiscal austerity across the region. It has led to renewed financial crisis where
sharp increases in sovereign bond spreads for the affected countries have weakened the
balance sheets of banks holding this debt, causing further turmoil in an already delicate
banking system, currency swings as investors search for safe havens and general turbulence
in financial markets. It has also plunged the confidence of both producers and consumers,
thereby affecting consumption and investment spending. The baseline forecast assumes
that the crisis remains contained (see box I.1 for a more complete discussion of the under-
lying assumptions), but the risks of a considerably less favourable outcome have increased.


North America


United States of America: growth decelerating
and dangers from fiscal impasse


During the first half 2011, economic growth in the United States decelerated significantly
to an annualized rate of 0.8 per cent from 3.0 per cent for 2010 as a whole. Among other
things, the spike in world oil prices beginning in late 2010 and the impact of the earth-
quake in Japan on the supply chains to industrial producers were two important causes for
this slowdown. During the third quarter, many survey-based indicators plummeted close




96 World Economic Situation and Prospects 2012


to recession levels. Nevertheless, hard data covering this period showed that growth actu-
ally accelerated. For the whole of 2011, gross domestic product (GDP) is expected to grow
by 1.7 per cent, followed by 1.5 per cent and 2.0 per cent for 2012 and 2013, respectively
(see annex table A.1).


Personal consumption expenditure is expected to remain modest in the out-
look conditioned on three major factors: a historically weak labour market, a continued
balance-sheet adjustment by households and the impact of the shift to fiscal austerity.
First, the situation for employment has been dismal, with the unemployment rate staying
at about 9 per cent throughout 2011. Almost no improvement is expected in 2012 and 2013
(annex table A.7). After almost two years of recovery, the number of payroll employees is
still more than 4 per cent lower than its pre-crisis peak. The slack in the labour market also
dampened wage growth (figure IV.1). Consequently, total labour income for households in
nominal terms was only about 2 per cent higher in 2011 than in 2008. Second, households
have yet to fully repair their balance sheets, damaged from the financial crisis and the col-
lapse in the housing market. Although house prices seemed to be approaching stabilization
in late 2011, their level is still more than 25 per cent below their peak in 2006. The value of
real estate owned by households suffered a loss of similar magnitude, while on the liability
side, outstanding mortgages declined by only about 6.5 per cent over the same period.
Financial assets held by households almost resumed their pre-crisis level by mid-2011,
but the volatile developments in global equity markets have contributed to a heightened
level of caution by consumers. Under all these pressures, private consumption growth is
projected to be about 2 per cent per year over the baseline forecast period.


The third restraining factor comes from public finance. It is assumed that
the economy will receive only minor fiscal stimulus over the forecast period. After the


Households are cautious
about increasing spending


Fiscal support for growth
is declining fast


Figure IV.1
Unemployment ratea and hourly earningsb in the
United States, January 1990-October 2011


0.5


1.0


1.5


2.0


2.5


3.0


3.5


4.0


4.5


Ja
n-


19
90


Ja
n-


19
92


Ja
n-


19
94


Ja
n-


19
96


Ja
n-


19
98


Ja
n-


20
00


Ja
n-


20
02


Ja
n-


20
04


Ja
n-


20
06


Ja
n-


20
08


Ja
n-


20
10


3


4


5


6


7


8


9


10


11


Re
ve


rs
ed


s
ca


le


Hourly earnings
(left-hand scale)


Unemployment rate
(right-hand scale)Source: UN/DESA, based on


data from the United States
Bureau of Labor Statistics.


a Seasonally adjusted
civilian unemployment rate


(percentage).
b Annual percentage of
average hourly earnings
of production and non-
supervisory employees,


total private sector.




97Regional developments and outlook


acceleration in federal Government debt accumulation during the recession, policy shifted
towards a strategy to stabilize the debt situation over time. Unfortunately, since the 2010
mid-term elections, the decision-making-process has become extremely protracted. The
federal Government budget for fiscal year 2011, which ended in September 2011, was not
finalized until April 2011, and the impasse during that process almost forced a shutdown
of the federal Government. In July 2011, the battle resumed, this time over raising the
debt ceiling, which became coupled with a major political struggle over how to cut the
fiscal deficit, and raised the spectre of a possible default. Although a stop-gap agreement
was finally reached at the last minute to avoid the much feared default on the Treasury
securities, it was not enough to stop one credit rating company (Standard & Poor’s) from
downgrading the rating for United States Treasury long-term securities by one notch. The
low level of consumer and business confidence observed in August and September 2011
was strongly connected to these developments. The special committee set up under that
agreement failed to reach a deal for deficit reduction by the sanctioned deadline, and long-
term action to cut spending may take effect in 2013. In the baseline scenario outlook, it
is assumed however, that two elements of the proposed American Jobs Act—the payroll
tax holiday and emergency unemployment compensation—will be enacted in 2012. The
federal fiscal deficit is projected to decline from a level of 8.6 per cent of GDP for fiscal
year 2011 to 5.2 per cent for fiscal year 2013.


In the forecast, residential fixed investment, while not expected to provide
significant support to growth, will not have the same dampening effect that it did over
the period 2008-2010. Business investment, however, is expected to provide noticeable
support. Many large profit-making corporations have accumulated huge amounts of very
liquid assets over the course of the recovery. Interest rates remain low due to the continu-
ing expansionary monetary policy. For those businesses with access to bank lending or
those that can raise funds from financial markets, the financing cost for new investment is
very low by historical standards. Investment in equipment and software, which has been
expanding strongly since the onset of the recovery, is expected to continue to grow, albeit
at a reduced pace over 2012 and 2013.


The United States dollar has depreciated by about 25 per cent over the past
decade,1 despite the period of appreciation that occurred during the recession. As a con-
sequence, the trade balance has improved in real terms, and helped support growth par-
ticularly during the recession. Going forward, net exports are expected to continue to
support growth, but will make a smaller contribution. This is because part of the boost to
growth during the recession was technical in nature, stemming from the dramatic drop
in imports. In the outlook, real export growth is projected to continue to outpace that of
real imports, but given the large external deficit at the start of the forecast, the level of the
current-account deficit will hardly change. However, as a ratio to nominal GDP, it will
average about 3.5 per cent over forecast period, much lower than the level observed before
the crisis.


During the recession, the United States Federal Reserve (Fed) introduced two
rounds of quantitative easing (QE) actions, under which it purchased large amounts of
long-term securities from the market. By doing so, it brought down the interest rate on
long-term securities. According to the Fed’s communications, market concerns regarding
a possible double-dip recession and deflation were the motivating factors behind these ac-
tions. In September 2011, the Fed announced a new policy stating that by the end of June


1 Measured on a broad index against other currencies.


Investment may be solid
despite heightened
uncertainty


The external balance has
improved somewhat


Monetary policy is still
providing limited support




98 World Economic Situation and Prospects 2012


2012, it would swap $400 billion worth of Treasury securities maturing within 3 years or
less into Treasury securities maturing within 6 to 30 years, the so-called Operation Twist.
The Fed is hoping to further reduce long-term interest rates. However, long-term interest
rates were already very low, even before the Fed’s last action, and it remains to be seen
how much further downward adjustment this operation can create. In the outlook, it is
assumed that there will be no more large-scale quantitative easing actions.


The risks to the baseline outlook for the United States economy are unfavourable.
The key external risk is that the euro area sovereign debt crisis will evolve into a disorderly
default and lead to crisis in European financial markets and economic recession. The direct
impact on the financial institutions in the United States and linkage effects through lower
profit-earning from Europe and reduced exports would retard growth. Domestically, the top
concern is the fiscal adjustment. The Budget Control Act of 2011 set up a framework to reach
an agreement to cut at least $1.2 trillion from the federal budget deficit over ten years, with a
default clause stating that if no agreement is reached, there will be automatic spending cuts
of $1.2 trillion. In addition, the debt ceiling will need to be raised and the Government will
again go through the same fraught political procedure discussed previously. This may dam-
age the confidence of consumers, businesses and financial markets, dragging down growth
prospects. The housing market poses another domestic risk. A significant proportion of
homeowners will still be holding negative home equity at the end of 2011. If house prices
decline significantly, it could trigger another vicious circle of foreclosures and falling prices
that would severely damage the balance sheets of banks and households.


Canada: facing increasing headwinds


After seven quarters of expansion, the Canadian economy declined slightly in the second
quarter of 2011. Exports fell at the annualized rate of 8.3 per cent (quarter over quarter)
causing GDP to decline by 0.4 per cent. Although growth has since resumed, many indi-
cators suggest that the momentum is weak. For 2011 as a whole, GDP is expected to grow
by 2.1 per cent, followed by 1.7 per cent and 2.3 per cent for 2012 and 2013, respectively.


The sharp drop in exports during the second quarter of 2011 was largely due
to the disruption of the supply chain for auto production caused by the earthquake in
Japan. Nevertheless, even after this impact faded, the external sector continued to ham-
per growth. The Canadian currency has appreciated significantly against the dollar over
the past few years, weakening competitiveness in the United States market, which is the
destination for more than 75 per cent of its exports. The tepid growth of the United States
economy also limits the expansion of manufacturing exports. Consequently the current-
account balance is expected to remain in deficit over the forecast period.


The current governing party gained a majority in parliament for the first time
following a federal election in May, an outcome that will enhance its capacity to balance
the federal budget by 2016. Based on this, it is assumed that Government expenditure (as
a share of GDP) will fall over the forecast period.


Favourable financial conditions have boosted business investment, especially
in machinery and equipment. This upward trend is expected to continue, though at a
slower speed. The housing market expanded quickly in 2010, but has since shifted into
lower gear. Household debt as a ratio of disposable income has increased from 110 per cent
to the current 150 per cent over a decade, and may pose a risk going forward. For Canada,
the most significant risk is a renewed recession in other developed economies, especially
in the United States.


Downside risks abound




99Regional developments and outlook


Developed Asia and the Pacific


Japan: earthquake recovery, but one
threatened by slowing global demand


In the first half of 2011 and in the aftermath of the devastating earthquake in March, the
economy of Japan contracted by about 3 per cent. While the recovery was strong in the
third quarter, it tapered off towards the year’s end. Though GDP is estimated to have fallen
by 0.5 per cent for 2011 as a whole, growth of about 2 per cent, driven by post-quake re-
construction, is forecast for 2012 and 2013. However, much weaker demand in other major
economies and challenges in the Government budget to finance the reconstruction could
drag the economy of Japan down to a much weaker growth rate than baseline projections.


The employment situation was aggravated by the earthquake and related dis-
asters, but has since been gradually improving. The unemployment rate declined to about
4 per cent in late 2011, the lowest since it peaked at 5.6 per cent in 2009. The ratio of
job offers to applicants has been increasing, but nominal wages per employee nonetheless
declined somewhat during most of 2011.


In 2011, higher international prices of oil and other primary commodities and
the disruptive shock of the earthquake pushed up the general price level in Japan, lifting
the economy out of a protracted deflation. The consumer price index (CPI) is estimated
to have risen by about 0.8 per cent in 2011, from the deflation of about 1 per cent in the
previous two years. In the outlook, however, prices may fall again in 2012-2013.


In May 2011, exports began to rebound from the major disruptions of March,
but export growth decelerated later in the year as global demand softened (see figure IV.2).


The employment situation
has improved


Deflationary conditions
have temporarily abated


Japan rebounds from
natural disasters, but
exports face headwinds


Figure IV.2
Index for Japanese export volume, January 2009-September 2011


Index: 2005=100


70


80


90


100


110


120


130


Ja
n-


20
09


A
pr


-2
00


9


Ju
l-2


00
9


O
ct


-2
00


9


Ja
n-


20
10


A
pr


-2
01


0


Ju
l-2


01
0


O
ct


-2
01


0


Ja
n-


20
11


A
pr


-2
01


1


Ju
l-2


01
1


Source: Bank of Japan.




100 World Economic Situation and Prospects 2012


The steady appreciation of the yen likely also curbed exports, but past experience shows
that global demand has a more important impact on Japan’s exports than exchange-rate
shifts. Shortly after the natural disaster, imports rose notably, pushed mainly by higher
demand for food, but import growth has since slowed. Japan’s trade surplus dropped sig-
nificantly during 2011, while the current-account surplus decreased by about 1 percentage
point of GDP. In the outlook, the surplus is expected to stay somewhat below 3 per cent
of GDP.


With policy interest rates near zero for many years, monetary policy in Japan
has mainly featured the expansion of the balance sheet of the country’s central bank.
Throughout 2011, the Bank of Japan (BoJ) continued to increase the size of the Asset
Purchase Program (APP), including the purchase of risky assets, such as commercial paper
and corporate bonds, in addition to Government bonds. In the outlook, the BoJ is expect-
ed to continue relying on the APP, combined with intervention in the foreign-exchange
market to prevent the further appreciation of the yen.


In order to limit the impact of reconstruction spending on the budget deficit,
the Government is employing various options, including tax increases and the sale of
some Government assets. The gross Government debt of Japan is currently more than
200  per  cent of GDP, the highest among developed countries. The Government has
proposed an increase in the consumption tax, to 10 per cent by 2015, but it is highly
uncertain whether this will be sufficient to bring the debt-to-GDP ratio to more sustain-
able levels.


Australia: recovering from record flooding


In Australia, the recovery from the mammoth flood in the eastern states has been slower
than expected. GDP is estimated to grow by only 0.5  per  cent during 2011. While a
gradual recovery in coal production from the flood damage and a continued increase in
mining sector investment supported growth, investment in other sectors has been weaken-
ing, along with a weak labour market and consumer sentiment. GDP is expected to grow
about 2.6-2.8 per cent in the outlook for 2012-2013. Any increase in the policy interest
rate is expected to be limited. Fiscal policy has been tightening as the Government aims
to return the budget to surplus in 2013, although the extra spending on reconstruction
related to the flood damage may challenge the budget target.


New Zealand: earthquake reconstruction boosts growth


In New Zealand, the damage from the earthquake that occurred in February 2011 in the
Canterbury region was tremendous, but an economy-wide recession was avoided. GDP
increased by about 1.4 per cent in 2011. Business investment has been recovering since the
earthquake, but private consumption remains lacklustre. GDP is expected to recover to
about 2.5-3.0 per cent in the baseline forecast for 2012-2013. Two of the three major in-
ternational rating agencies downgraded New Zealand’s sovereign debt rating in September
2011, triggered by concerns over the elevated level of the country’s external debt, which
stands at about 80 per cent of GDP. The Government has planned a number of measures,
including significant spending cuts in the medium term and some partial privatization of
State-owned assets, aimed at returning to budget surplus in 2014-2015.


Monetary policy continues
to rely on unconventional


measures


Fiscal policy is hovering
between post-disaster


reconstruction needs and
debt sustainability




101Regional developments and outlook


Europe


Western Europe: sharply slowing growth
as the debt crisis grips the region


Western Europe grew strongly in the first quarter of 2011, but activity decelerated signifi-
cantly thereafter and is expected to stall by the end of the year. To some extent, the initial
sharp deceleration in the second quarter was heavily influenced by unusual factors, includ-
ing the German nuclear power plant closures, supply chain disruptions from the multiple
disasters in Japan, normalization in the construction sector after its sharp rebound in the
first quarter from the bad winter weather and the sharp rise in oil prices. But GDP growth
was no better in the third quarter (although there was large diversity across countries), and
a wide variety of leading indicators have shown a clear and substantial decline in sentiment
across countries and sectors.


Growth is hindered by a number of factors. The global manufacturing cycle
has peaked and is now in a downturn as global demand slows, particularly in East Asia and
the United States. Fiscal austerity programmes are in force across the region. The sovereign
debt crisis that erupted in Greece in May—which subsequently spread, first to Ireland and
Portugal and then to Spain and Italy—has led to plunging confidence of both producers
and consumers, as well as to a weakening of the already delicate banking system. Growth
is expected to be 1.5 per cent in the European Union-15 (EU-15) in 2011, similar to the
spring forecast, but only due to a much stronger-than-anticipated first quarter balanced by
a much weaker-than-expected rest of the year. Given the extremely low momentum going
into 2012, GDP growth is expected to be only 0.5 per cent, a substantial downward revi-
sion from the spring forecast, and with only a modest upturn expected for 2013, growth is
expected to be only 1.6 per cent (see annex table A.1).


High frequency hard data and indicators of sentiment through the first quarter
of 2011 depict a recovery led by a sharp rebound in the manufacturing sector, with services
following a more muted path and construction playing a restraining role. In April 2011, a
wide variety of measures indicated a clear change of direction with broad-based declines
across both country and sectoral surveys. These declines continued throughout the year
and have reached levels consistent with a contraction in activity. The hard data, however, at
least through August, showed no evidence of a downturn: industrial production continued
to increase, albeit with signs of deceleration; construction remained only marginally above
its recession-era trough, clearly weak, but showed no sign of a downturn; and retail trade
also showed some deceleration, but again no major downturn. The September release for
these data, however, does show a significant decline. Comparing industrial production
with industrial confidence and quarterly GDP growth rates, the pattern is worryingly
similar to the period prior to the Great Recession of 2008-2009 (see figure IV.3), and
indicates that the brunt of the slowdown will be concentrated in the final quarter of 2011
and the beginning of 2012.2


In the first quarter of 2011, private consumption was an important driver of
growth. It was supported by greatly growing confidence and a moderate improvement in
real disposable income through a combination of good labour market performance in a
number of countries, falling unemployment, rising nominal wages and low inflation. Then


2 The continuing strength of the industrial sector helps explain the strength of the rebound in
Germany and France in the third quarter after the unusual one-off events depressed second
quarter growth.


After a strong start, growth
decelerated sharply to near
stagnation in 2011


Multiple headwinds
batter the region


High frequency data are
sending warning signals


Domestic demand showed
promise, but then lost
vigour




102 World Economic Situation and Prospects 2012


higher oil prices started to hit disposable income and the sovereign debt crisis led to a
dramatic drop in confidence, and in some cases far tighter fiscal policy. In the outlook,
consumption is expected to remain very subdued, constrained by continuing fiscal consoli-
dation measures, less certain labour market prospects, uncertainty from the debt crisis and
tightening bank-lending conditions. Slowing inflation on the other hand, provides some
support. In the crisis-affected countries, consumption is expected to continue to contract.


Fixed investment in plants and machinery was the other major component
of domestic demand that drove GDP growth in the first quarter of 2011, particularly in
those economies most geared to export markets and capital goods. The strong rebound in
manufacturing industries, fuelled by external demand coupled with increasing capacity
utilization (which in the euro area reached 81.6 per cent in the second quarter of 2011),
rising business profits and stabilizing financing conditions, supported investment growth.
Confidence was at record highs in Germany. Going forward however, investment is ex-
pected to weaken significantly, impacted by now decelerating external demand coupled
with deteriorating financing conditions and declining capacity utilization and, more gen-
erally, by increasing uncertainty. Housing investment has been a drag on activity since the
beginning of the recovery and is expected to remain lacklustre.


The dynamic growth of export volumes has been a key factor driving the recov-
ery, both through its impact on net exports as a source of growth and through its influence
on investment spending. However, it is decelerating in line with the slowdown in global
growth. In the first quarter of 2011, there was some evidence of a maturing of the recovery,
with domestic demand becoming a more prominent source of growth and net exports
becoming neutral, as import volumes accelerated. This was short-lived, however, and going
forward, despite the slowing of global demand, the sharp deceleration of activity in the
region is again leading to a growth profile dominated by net exports.


Growth relies too heavily
on slowing exports


Figure IV.3
GDP, industrial production and industrial confidence
in the euro area, first quarter 2005-third quarter 2011


20
05


-Q
1


20
05


-Q
2


20
05


-Q
3


20
05


-Q
4


20
06


-Q
1


20
06


-Q
2


20
06


-Q
3


20
06


-Q
4


20
07


-Q
1


20
07


-Q
2


20
07


-Q
3


20
07


-Q
4


20
08


-Q
1


20
08


-Q
2


20
08


-Q
3


20
08


-Q
4


20
09


-Q
1


20
09


-Q
2


20
09


-Q
3


20
09


-Q
4


20
10


-Q
1


20
10


-Q
2


20
10


-Q
3


20
10


-Q
4


20
11


-Q
1


20
11


-Q
2


20
11


-Q
3


20
11


-Q
4


75


80


85


90


95


100


105


110


-2.8


-2.4


-2.0


-1.6


-1.2


-0.8


-0.4


0.0


0.4


0.8


1.2


GDP growth
(quarter over quarter, right-hand scale)


Industrial production
(excluding construction, left-hand scale)


European Commission economic
sentiment indicator (left-hand scale)


Index: 2005=100


Sources: Eurostat, European
Commission and OECD Main


Economic Indicators.




103Regional developments and outlook


At the aggregate level, labour markets have shown very little change since the
end of the recession, with unemployment remaining near 10 per cent in the euro area since
September 2009. This result comes from balancing countries, including those that have
seen large improvements, such as Austria, Belgium and Germany, with those that have
seen large deteriorations, including all the crisis countries. These different outcomes can
be attributed to relative growth performances (heightened by the tremendous fiscal con-
solidations taking place in some countries), different degrees and types of labour market
policies and structural differences. Given the subdued outlook, unemployment is expected
to remain near current levels for the EU-15, with the crisis countries deteriorating further,
or at best, remaining at elevated levels (see annex table A.7).


Headline inflation, as measured by the Harmonised Index of Consumer Prices
(HICP), rose steadily throughout 2010, reaching 2.9 per  cent in the second quarter of
2011 in the euro area, and then after receding for a few months, began to rise again,
reaching 3.0 per cent in September. Core inflation, on the other hand, remained quite
stable in 2010, but traced a similar pattern to that of headline inflation in 2011, rising to
1.6 per cent in September. The rising prices of oil and other commodities were key fac-
tors in explaining this movement, though in the first quarter, growth was insufficient to
make much headway in closing the output gap, and real wage growth lagged productivity
improvements. Going forward, weakening activity is expected to put downward pressure
on prices (see annex table A.4).


The euro area fiscal deficit increased substantially during the recession from
2.1  per  cent of GDP in 2008, to 6.4  per  cent in 2009, and dipped only slightly, to
6.2 per cent, in 2010. All members of the euro area, except Finland, Luxembourg and
new member Estonia, registered deficits greater than 3 per cent of GDP in both 2009 and
2010, which is the limit enshrined in the Stability and Growth Pact (SGP). Under the
Excessive Deficit Procedure (EDP) these countries had to submit stability programmes
with explicit plans for bringing their deficits back to below 3 per cent. Most members of
the euro area are tightening their budgets, with a minimum requirement of an improve-
ment in budget deficits of 0.5 per cent of GDP per annum. The annual consolidations,
however, are much higher in the crisis affected countries and may need to be strengthened
if there are shortfalls in revenues. After its deficit rose sharply, the United Kingdom of
Great Britain and Northern Ireland also came under pressure, and is pursuing a dramatic
consolidation programme.


After leaving its main policy rate at 1.0 per cent for more than a year and a
half following the recession and relying solely on unconventional policy measures, the
European Central Bank (ECB) surprised the markets by raising interest rates in early
and mid-2011 by a total of 50 basis points. Part of the surprise lay in the fact that it was
widely believed at the time, that the unconventional policies would be phased out prior to
any resumption of conventional interest-rate policy moves, but the unconventional policy
measures were still in active use. They were, however, targeted almost exclusively to sup-
port the banks and the sovereign debt of the crisis-affected countries, rather than to sup-
port the banking system as a whole, so there could be a separation of policies. But as the
euro area debt crisis has worsened, embroiling more countries and banks, this distinction
is fading. These unconventional policies consist of various ways to supply liquidity to the
affected banks: refinancing operations at various term lengths, the purchase of covered
bonds and, in concert with other major central banks, the provision of United States dollar
liquidity. They also (and more controversially) include the purchase of Government bonds
in secondary markets.


Labour markets show
diverging trends


Rising inflation will
be short-lived


Fiscal austerity grips
the region


The ECB reverses course,
reducing its main policy
interest rate, and steps up
the use of unconventional
measures




104 World Economic Situation and Prospects 2012


The worsening crisis led the ECB to change course in November, cutting its
main policy rate by 25 basis points. With another similar cut assumed in December, the
main policy rate will return to 1.0 per cent, after which conventional policy will again be
on hold. It is also assumed that unconventional policies will remain in use throughout the
forecast period.


Key risks to the forecast are weighted downward. They are led by the still
deepening and expanding sovereign debt crisis, with threats of further contagion to the
larger economies of the region and to the fragile banking system, both of which would
place far larger demands on financing needs, and in the case of the banking system, cause a
renewed financial crisis. A related risk is that the current fiscal austerity programmes could
be strengthened, as a result of the pressures from the crisis, or that their impact on growth
would be more than anticipated. Finally, the prolonged period of low growth, and hence
high unemployment, in many regional economies risks increasing the rate of long-term
unemployment in the region, making it far more difficult to reduce unemployment in the
future. This would also reduce the growth rate of potential output.


The new EU members: dangers from
a weakening in the rest of the EU


During 2011, the economies of the new EU member States from Eastern Europe contin-
ued to recover from the deep recession that started in late 2008. The recovery, however, is
still mired by weak labour markets, feeble consumer and business confidence and strong
social discontent towards the Governments’ fiscal austerity measures. In a number of
economies, the initial export-led expansion has evolved into a more broad-based recovery
with strengthening household consumption and investment, while in others, exports still
remain the sole driving force. Mirroring their main export markets in the euro area, many
of the new EU economies lost steam in the second half of 2011. Stock markets tumbled,
reflecting worries about the short-term prospects of those countries. For many reasons,
including much improved current accounts, the new EU members are not as vulnerable
to the sovereign debt crisis or possible banking crisis in the euro area, as they were to the
global financial crisis in 2008. At the same time, however, they are now more vulnerable
because they have exhausted most of their fiscal space for conducting counter-cyclical
policies to mitigate the impact of another global downturn. The capital position of the
banking system improved, but there is no guarantee that foreign banks operating in these
economies will keep their promise not to withdraw vast amounts of resources during a new
crisis, much as they did in 2008-2009.


Against the backdrop of an anticipated slowdown in the euro area in 2012,
the nature and speed of the recovery in domestic demand will determine the short-term
macroeconomic prospects for the region. However, the cycle of inventory rebuilding that
had been supporting growth is virtually complete, while private consumption remains
constrained by household indebtedness and many investment projects have been put on
hold. Consequently, in 2012, domestic demand is unlikely to bolster growth. Growth of
the aggregate GDP of the new EU members, which accelerated from 2.3 per cent in 2010
to 2.9 per cent in 2011, is therefore expected to slow to 2.6 per cent in 2012, strengthening
later to 3.1 per cent in 2013. However, forecast growth remains significantly below pre-
crisis levels (see annex table A.1).


The largest and least export-dependent economy in the new EU, Poland, main-
tained its strong economic momentum in 2011, with GDP increasing by 4 per cent, largely


Downside risks are
substantial and centre on


sovereign debt crises


Exports will provide little
impetus to growth in 2012




105Regional developments and outlook


supported by domestic demand. The construction sector expanded rapidly, boosted by
preparations for the UEFA Euro 2012 football championships and public infrastructure
spending supported by EU funds. Provided that robust investment spending is sustained
and a more competitive exchange rate offsets weaker import demand from the EU, the
economy could expand by over 3 per cent in 2012. However, a weaker currency may also
dampen consumption, as households repay their foreign currency loans.


For the smaller economies of Central Europe, growth in 2011 was predomi-
nantly driven by exports, especially by the automotive and electronic sectors. Foreign di-
rect investment (FDI) flows into those countries have modestly recovered and are expected
to rise in coming years. The Baltic States have registered the highest growth rates, but they
are bouncing back from deep recessions, and income remains significantly below pre-crisis
levels. In the Czech Republic and in the Baltic countries, domestic demand recovered
somewhat in 2011, but it remains depressed in Bulgaria, Hungary and Romania. The
appreciation of the Swiss franc placed strong pressure on households and businesses in
Hungary and Poland, which had borrowed heavily in that currency. If this appreciation is
sustained, it may seriously affect consumer spending and investment (see box IV.1). Most
of these economies are expected to grow by 2 to 3 per cent in 2012.


The spike in oil and food prices led to higher inflation in the region in early
2011, although its impact on the overall CPI varied across the countries. One-off factors
such as higher value added tax (VAT) rates fed into consumer prices, but these were offset
by weak domestic demand and subdued wage growth. Inflation moderated in the second
half of the year as food prices retreated. In some countries, including in the Baltic States,
however, core inflation started to rise. Similar one-off factors, such as higher VAT rates
in Hungary and the liberalization of energy prices in Romania are expected to influence
inflation in 2012. Nonetheless, slower export growth and stagnating nominal wages and
credit should keep inflation in the low single digits (see annex table A.4).


Estonia adopted the euro in January 2011, and in line with the ECB rules,
reduced mandatory reserve requirements for commercial banks. The central banks in
Hungary and Poland raised interest rates in 2011 to keep inflation within the target range.
Provided that inflationary pressure is contained, however, monetary policy should remain
accommodative in 2012. In any case, even though banks in the new EU countries are not
facing liquidity constraints and the number of non-performing loans has probably peaked,
they remain reluctant to lend.


Labour markets of the new EU member States continue to recover even as un-
employment rates remain high, at more than 10 per cent in over half of the countries in
2011. Improvements were largest in the countries with the highest unemployment rates, for
instance, the Baltic States. Elsewhere, progress has been slower. Conditions are expected to
continue improving in 2012, even if at a rather slow pace (see annex table A.7). The rise of
structural unemployment and the substantial skill mismatches in the supply and demand
for labour will affect the growth of potential output in the long run. Governments are
constrained in stimulating employment growth given their limited fiscal space.


On the fiscal policy side, most of the Governments of the new EU members
have yet to reduce their budget deficits to the EU target of less than 3 per cent of GDP. In
parallel, they are aiming to reform public finance, especially by improving the sustainabili-
ty of pension systems, in the light of impending unfavourable demographic developments.
Reaching political consensus on specific policies, however, is proving to be difficult. The
proposed budgets for 2012 envisage further austerity measures, such as reductions in the
size of the public sector, as well as increases in indirect taxes. The Government of Hungary


Oil and food prices pushed
up inflation in early 2011


Credit supply is slow
to pick up


Employment is steadily
recovering in the Baltic
States, but skill mismatches
remain problematic


Fiscal policies are shifting
to greater austerity




106 World Economic Situation and Prospects 2012


The impact of the appreciation of the Swiss franc
on the economies of Eastern Europe


Foreign currency denominated loans account for a sizable percentage of loans in a number of the
new European Union (EU) member States and South-Eastern European economies (see figure). This
would make these countries vulnerable to rising debt-servicing costs should these foreign currencies
appreciate substantially with respect to their national currencies. Indeed, several economies, mostly
new EU member States, have been adversely affected by the steep appreciation of the Swiss franc,
which investors took in as a safe-haven currency during the financial turmoil of 2011. Homeowners
and investors acquired substantial foreign currency loans (especially mortgages), as these carried
much lower interest rates than domestic ones, and residents anticipated (incorrectly in retrospect)
that their national currencies would appreciate against the euro and Swiss franc. The interest rates
on Swiss franc loans were particularly low and hence the most popular. For example, in Hungary,
the Swiss franc rate for a home equity loan was 4.8 per cent in 2005, while it was 17.6 per cent for
loans in Hungarian forint. As a result, more than half of all mortgages in Hungary are denominated
in Swiss francs and total private sector loans in francs amounted to 20 per cent of GDP in 2011. In
Poland, 700,000—or over half of total mortgage loans outstanding—were denominated in Swiss
francs. Over a quarter of these loans (or one half of those issued in 2006-2008) went under water in
2011 as a result of the appreciation of the franc, substantially increasing the domestic currency value
and debt-servicing costs of these loans.


In some economies, borrowing in foreign currency by commercial businesses and, in
some cases, local governments is also widespread. The losses of financial wealth and higher borrow-
ing costs caused by the foreign currency appreciation have drained purchasing power from these
economies at a time when unemployment is high. In Hungary, the Government has felt compelled
to provide assistance to homeowners holding foreign currency mortgages. Under the programme,
homeowners are allowed to pay back their loans at below market exchange rates (180 forint to the
Swiss franc instead of the market rate, which was about 235 forint in the fall of 2011), while the banks
are forced to accept the losses. The measure could affect bank lending and the investment climate,
possibly affecting future growth. The large share of foreign currency loans also limits the scope of
economies with flexible exchange rates to allow their currencies to depreciate in order to stimulate
exports and output growth as such devaluations may trigger a wave of debt defaults.


Box IV.1


Share of foreign currency denominated loans, 2010


Percentage of loans denominated in foreign currency


0


10


20


30


40


50


60


70


80


Hungary Poland Bulgaria Romania Albania Croatia Serbia


Sources: Jarko Fidrmuc,
Mariya Hake and Helmut
Stix, “Households’ foreign


currency borrowing
in Central and Eastern


Europe”, Österreichische
Nationalbank Working Paper,


No. 171 (Vienna, Austria,
September 2011).




107Regional developments and outlook


intends to retain the extra taxes introduced in 2010 on financial institutions and on large
corporations until 2013.


Most of the new EU member States would be affected by further deepening
of the sovereign debt crisis in the euro area, since in such a scenario, weaker exports may
lead to even lower growth rates in 2012. Moreover, there is a risk, as indicated earlier,
that many large EU-15 banks present in those countries, in the instance that their bal-
ance sheets are damaged, may decide to deleverage and withdraw capital from the region,
thereby stifling credit growth. Possible worsening of the terms of access to capital markets
would complicate the refinancing of external debt obligations of the new EU members.


Economies in transition
In 2011, aggregate GDP of the transition economies expanded by 4.1 per cent. Growth was
largely driven by stronger export performance and domestic demand, although continued
deleveraging of the financial sector kept investment subdued. While labour market indica-
tors improved during 2011, inflation accelerated despite a slowdown in price increases in
some countries in the second half of 2011. A weaker external environment contributed
to a softening of growth in the second half of 2011, such that overall, the increase in ag-
gregate GDP remained unchanged from 2010. Performance diverged across the economies
in transition, however. In the economies of South-Eastern Europe, the economic recovery
that commenced in 2010 gained a stronger foothold and aggregate GDP growth acceler-
ated from 0.6 per  cent in 2010 to 1.7 per  cent in 2011, in particular as Croatia exited
from its recession. In contrast, growth in the Commonwealth of Independent States (CIS)
decelerated from 4.5 per  cent in 2010 to 4.3 per  cent, reflecting the impact of weaker
commodity prices on the larger economies of the region (see annex table A.2).


The economies in transition remain vulnerable to external economic develop-
ments. This is due to structural factors, including their pattern of export specialization
and a high dependence on external funding. Thus, while the continued fragility of the fi-
nancial sector and the dependence on international commodity prices remains a cause for
concern in the CIS, spillover effects of the European debt crisis through financial channels
pose more of a threat to South-Eastern Europe. Continued financial turbulence and more
fragile growth prospects for developed economies will therefore lead to a more moderate
expansion of aggregate GDP in the outlook. Growth rates are expected to remain well
below those observed in the pre-crisis era.


South-Eastern Europe: an already slow
recovery threatened by euro area troubles


The tentative economic recovery in the economies of South-Eastern Europe that began
in 2010 gained further ground in 2011, driven initially by export growth and by rising
domestic demand thereafter. Nevertheless, the region continues to experience below-trend
growth as household consumption and investment remain subdued by weak consumer
sentiment, limited availability of credit, slow real wage growth and tepid FDI inflows. The
continued financial turbulence and weak growth in the euro area threaten to spill over into
the region via trade and financial channels, and could easily unsettle the recovery.


GDP growth was positive in 2011 in all economies of the region, averaging
1.7 per cent, up from less than 1 per cent in 2010 (see annex table A.2). Since their major
export markets are in the EU—which is facing the prospect of a protracted slowdown—
none of the economies in the region is expected to see strong output growth in the outlook


The new EU members are
vulnerable to the euro
zone crisis




108 World Economic Situation and Prospects 2012


for 2012. In addition, Governments are adopting fiscal austerity programmes; however,
their impact is cushioned to some extent by attempts to preserve and, in some cases, boost
public investment. Domestic consumption and investment are expected to pick up only
marginally, although investment in Croatia is expected to recover from its long period
of contraction. Aggregate GDP of South-Eastern Europe is expected to expand by only
2.3 per cent in 2012, well below trend growth, but slightly higher than in 2011 due to
the slight acceleration of growth in Croatia and Serbia. Growth should strengthen to
3.2 per cent in 2013, in line with the improving economic environment.


One-off factors have continued to influence consumer inflation, which picked
up throughout the region during 2011. This reflected the impact of increased world market
prices for energy and food. In 2010, strongly expansionary monetary policy fanned infla-
tion into the double digits in Serbia. Inflation moderated in the course of 2011, along with
monetary tightening and the stabilization of world energy and food prices. Nonetheless,
annual inflation averaged more than 11 per cent.


In 2012, absent any serious supply-side shocks, inflation is expected to hover
around 3 per cent for the region as a whole, with slow wage growth and cautious consumer
demand curbing its growth. Inflation in Serbia may still be above the regional average (see
annex table A.5).


In the first half of 2011, unemployment increased further from already high
levels in most of the countries in the region, especially in Croatia and Serbia, as job growth
lagged the output recovery. In the second half of the year, unemployment started to de-
cline, driven by the cyclical upturn and continued labour market reforms. These reforms
are aimed at boosting incentives to work and increasing formal employment, while at the
same time maintaining social protection. If these trends persist, unemployment is likely
to decline throughout the region in 2012 (see annex table A.8). Nevertheless, much of the
unemployment is structural and will require fundamental supply-side reforms in labour
market, education and competition policies.


Formal or de facto currency pegs constrain the conduct of monetary policy
in most South-Eastern European countries. Growth of credit to the private sector re-
mains weak in the region, reflecting concerns about the health of the banking sector that
is predominantly controlled by foreign banks. Concerns centre on the volume of non-
performing loans, the need for further deleveraging and the continued weak demand for
credit. The appreciation of the Swiss franc has dampened household spending in Croatia,
where over 40 per cent of mortgages and almost 50 per cent of car loans are pegged to
the Swiss currency (figure IV.4; see also box IV.1). As a result, the Government has of-
fered a fixed exchange-rate loan repayment scheme that only defers financial obligations.
Households are thus likely to save much of the income freed from reduced payments.
Increased payments for foreign-currency denominated loans have also affected households
in Serbia, as its currency has depreciated against both the euro and the franc. The risk
has been less acute in other South-Eastern European countries that have higher shares of
euro-denominated loans and their currencies pegged to the euro.


FDI inflows into the region declined further in 2010 after significant falls in
2009, with the exception of Albania where they reached record levels. A prompt return to
the very high levels of FDI inflows these countries enjoyed in the years before the global
crisis is unlikely, given the lasting impact of the Great Recession, the ongoing euro area
debt crisis and continued ethnic tensions in parts of the region, which will also likely hold
back prospective investors. Even so, foreign investment in Croatia might increase in 2012,
provided that the country’s accession to the EU remains on track for 2013.


Food and energy prices
raised inflation in


early 2011


Labour markets remain
slack but show some


positive trends


Credit supply remains
subdued, while the


stronger Swiss franc
affects borrowers


FDI remains below
pre-crisis levels




109Regional developments and outlook


After enacting counter-cyclical policies during the crisis, Governments across
the region are consolidating their finances while preserving capital expenditure levels.
Resources directed through development banks have promoted business lending in sup-
port of economic diversification, but progress in the use of those funds has been slow. To
a large extent, critical social spending has also been protected throughout much of the
region (Bosnia and Herzegovina, Serbia and the former Yugoslav Republic of Macedonia)
with the assistance from international financial institutions.


The region remains exposed to spillover risks from the Greek debt crisis,
mostly through finance, given the heavy presence of Greek banks and reduced FDI flows.
In addition, Albania, Montenegro and the former Yugoslav Republic of Macedonia may
experience a contraction in remittances and weaker exports. An intensification of the debt
crisis in Italy would have an even more disruptive impact on the region through the same
channels.


The Commonwealth of Independent States:
recovery continues, but risks increase


In 2011, economic activity expanded in the CIS, although growth was subdued in compari-
son to the faster pace observed in the period prior to the 2009 crisis.3 A somewhat weaker
performance is expected in the outlook due to the deterioration of the global economic
situation (figure IV.5). In 2011, stronger commodity prices gave impetus to the expansion
of output in several economies, including the largest economy, the Russian Federation,
which remained the major force of economic dynamism in the CIS. The deterioration of


3 Georgia’s performance is discussed in the context of this group of countries for reasons of
geographic proximity and similarities in economic structure.


While consolidating
budgets, Governments
are also trying to protect
infrastructure spending


The region remains
vulnerable to
developments in the
euro area


Growth remains steady
but unimpressive


Figure IV.4
Currency composition of outstanding loans in Croatia, 2002-2011


0.0


10.0


20.0


30.0


40.0


50.0


60.0


70.0


80.0


90.0


100.0


M
ar


-2
00


2


S
ep


-2
00


2


M
ar


-2
00


3


S
ep


-2
00


3


M
ar


-2
00


4


S
ep


-2
00


4


M
ar


-2
00


5


S
ep


-2
00


5


M
ar


-2
00


6


S
ep


-2
00


6


M
ar


-2
00


7


S
ep


-2
00


7


M
ar


-2
00


8


S
ep


-2
00


8


M
ar


-2
00


9


S
ep


-2
00


9


M
ar


-2
01


0


S
ep


-2
01


0


M
ar


-2
01


1


Percentage


Source: Croatian National
Bank.


Domestic


Other


Swiss franc


Euro




110 World Economic Situation and Prospects 2012


the external environment towards the end of the year resulted in softer commodity prices
and reduced prospects for external finance. Aggregate GDP in the region rose by about
4.3 per cent in 2011, compared to 4.5 per cent in 2010 (see annex table A.2). While aggre-
gate growth is expected to decelerate to 4.0 per cent in 2012 before accelerating somewhat
in 2013, the high growth rates achieved in the pre-crisis era will remain elusive.


Improved terms of trade and better employment prospects supported the
growth of domestic demand in the region. However, the fragility of the banking sector
and continued deleveraging constrained investment activity, despite some improvement in
the Russian Federation and Ukraine. In Belarus, domestic demand contracted, but exports
rose strongly as a consequence of a sharp devaluation of the rouble. This was triggered by
significant pressures on foreign-exchange reserves as large State spending and unsustain-
able growth in wages and credit fuelled import demand. In Azerbaijan, repair works at
some drilling platforms disrupted oil production and contributed to a sharp deceleration
in growth. By contrast, gas exports increased in Turkmenistan due to new infrastructure.
The recovery from political unrest in 2010 and donor-funded infrastructure significantly
boosted output in Kyrgyzstan. The region experienced a significant rebound in agriculture
after a bad harvest in 2010. This was especially important for Armenia, as well as Ukraine,
which also benefited from increased construction in preparation for the UEFA Euro 2012
football championships.


The economic recovery has been accompanied by a modest improvement in
labour market indicators, with unemployment rates falling in the largest countries in the
region (see annex table A.8). In Kazakhstan, the impact of the substantial employment
growth on unemployment rates was partially offset by a rapid increase in the labour force.
By contrast, Georgia and the Republic of Moldova showed limited ability to generate


Domestic demand is
fuelling expansion


Unemployment is falling


Figure IV.5
The general slowdown in GDP growth rates in the
Commonwealth of Independent States and Georgiaa


Percentage points


-2 0 2 4 6 8 10


Slowdown in
2011 and 2012


2010Uzbekistan


Belarus


Kazakhstan


Republic of Moldova


Tajikistan


Georgiaa


Russian Federation


Turkmenistan


Ukraine


Kyrgyzstan


Armenia


Azerbaijan


Slowdown
in 2012


Acceleration
in 2012


2011


2012


Sources: ECE and UN/DESA,
based on data from


Project LINK.
a Georgia officially left
the Commonwealth of


Independent States on 18
August 2009. However, its
performance is discussed


in the context of this group
of countries for reasons of
geographic proximity and


similarities in economic
structure.




111Regional developments and outlook


employment, despite continued output growth. Outward migration alleviated pressures
on labour markets in these countries. In the outlook, labour market indicators are ex-
pected to improve modestly in the region.


Inflation for the region accelerated to 9.6 per cent in 2011, up from 7.1 per cent
in 2010 (see annex table A.5). However, inflation patterns have been rather uneven in
the region. In most non-energy exporters, the acceleration in 2011 was mainly due to
increasing food and fuel prices, and in some cases, also to growing demand pressures.
The larger weight of food in consumer price indices in several economies explains some
of the observed inflation dynamics. By contrast, headline inflation peaked in the Russian
Federation and declined sharply in the second half of the year as the impact of the 2010
drought diminished. In Belarus, the devaluation of the rouble resulted in a sharp accelera-
tion of inflation. In Kazakhstan, the one-off effects of the customs union with Belarus and
the Russian Federation resulted in price increases, as some imports became more expensive.
In the outlook, more subdued economic growth due to the global economic slowdown will
lead to more moderate increases in prices in the region. Inflation for the region is expected
to decelerate to 7.8 per cent in 2012 and is likely to decline further in 2013.


As the economic recovery continued and food and fuel prices increased, many
countries raised interest rates and tightened liquidity throughout 2011. Monetary measures
were complemented in some cases with price controls and support to agriculture to ease the
situation in food markets. In Belarus, the authorities tried to contain the inflationary pres-
sures unleashed by the devaluation of the rouble through price controls and sharp increases
in interest rates. By November 2011, the refinancing rate had been increased during the year
by over 2900 basis points to 40 per cent. In the Russian Federation, a moderation of price
pressures in the last part of 2011 and the deterioration of the economic outlook led to a
pause in interest-rate increases. However, foreign-exchange interventions to support the rou-
ble amid worsening risk perceptions resulted in tighter liquidity. In 2012, growing downside
risks to the global economy and lower inflationary pressures may prompt a loosening of the
monetary stance in the region. This has already taken place in Armenia and Georgia, where
key interest rates were reduced in the second half of 2011; in Georgia, reserve requirements
were loosened to stimulate the long-term financing of commercial banks.


Economic growth strengthened fiscal positions throughout the region in 2011,
especially in the energy-producing economies. However, increased spending in response to
external shocks limited such improvements in fiscal balances in some cases. In Azerbaijan,
the authorities sought to offset the depressing effect of oil sector problems with significant
fiscal outlays. In the Russian Federation, despite high oil prices, payroll tax reform and
increased tariff revenue, the budget ended roughly in balance, which indicated its vulner-
ability to changes in the external environment. In Kazakhstan, a doubling of the duty on
oil in 2011 to $40 per tonne helped reduce the deficit. Meanwhile, several countries in the
region continued to receive external resources to support their economies. Among these,
fiscal consolidation was substantial in Ukraine, while in Kyrgyzstan increased social and
infrastructure spending widened the deficit. With a weakening of oil prices, deficits are
likely to widen in the outlook unless revenue is strengthened. This is particularly applica-
ble in the Russian Federation, where social and public spending is likely to increase in the
run-up to the presidential elections.


Higher commodity prices and increased export volumes have driven an in-
crease of exports in the region (see annex table A.16). The aggregate current-account
surplus of the region widened, mainly due to the improved performance of Kazakhstan
and the Russian Federation. The latter’s surplus financed significant capital outflows of


Inflation is declining
from early peaks


Monetary policy tightening
may be put on hold


Expansion is supporting
fiscal balances


The current-account
surplus for the region
is widening




112 World Economic Situation and Prospects 2012


$49.3 billion for the first nine months of 2011. Regardless of the depreciation of the ex-
change rate, the current-account deficit remained large in Belarus, which is increasingly
relying on official sources to finance the deficit; support from the Eurasian Economic
Community in response to the crisis became critical in avoiding a sharper adjustment.
High food and fuel prices contributed to the large deficits observed in the non-energy-
exporting countries, which continued to increase, despite growing remittances, with the
exception of Armenia. In Ukraine, strong import demand, in part due to investment and
construction related to the UEFA Euro 2012 football championships, offset higher exports
and led to a widening of the current-account deficit.


Growth in the region remains well below that observed in the pre-crisis period.
External factors, in particular commodity prices, are the dominant influence on economic
performance. Foreign financing remains critical for the region, in particular for Ukraine
and other non-energy-exporting countries that continue to have large current-account
deficits. The increased likelihood of slower global economic activity and heightened risk
aversion are likely to depress commodity prices and impair access to global capital markets.
Although the adjustments induced by the recent crisis have reduced reliance on external
funding in Kazakhstan and the Russian Federation, thus lowering their vulnerability, the
financial sector remains fragile in several other economies. This is dampening domestic
demand. Further global turmoil may take its toll and expose the region to multiple shocks
given its continued high reliance on exports of natural resources and external financing,
and its vulnerability to external events, especially those in Europe.


Developing economies
Despite a significant deceleration by developed economies, developing countries exhibited
strong growth performance in 2011, and are expected to continue on a significantly higher
growth path than the former group over the forecast period. Yet, the average growth rate of
6.0 per cent in 2011 and the expected growth rates of 5.6 per cent in 2012 and 5.9 per cent
in 2013 remain below the average 7.5 per cent of the pre-crisis period. In the aggregate, the
better growth performance of developing countries reflects both the fact that the economic
crisis of 2008-2009 did not originate within this region and the fact that policy stimuli
on various fronts were enacted promptly and were kept in place until recovery of either
investment or consumption was well under way. In addition, for many of the countries
in this group, most notably those in East Asia, domestic demand drivers reinforced trade
linkages, especially South-South relations. In a number of other countries, policy stimuli
appeared to be stronger during 2011 than before, as social unrest triggered by high unem-
ployment and rising prices of food, among other factors, made Governments more aware
of the pressing need to address unresolved employment and social challenges.


Of course, the confluence of the positive factors does not apply equally to all
countries in the developing world. Many countries in Africa or in South Asia were not able
to enjoy the policy space or were threatened by rising inflation owing to reasons beyond
Government control—factors that eroded the ability to sustain domestic demand when
other growth drivers faltered. In another example, some countries have not benefited from
the favourable terms of trade experienced by exporters of energy and minerals. In particu-
lar, food-importing countries have run into food-inflation problems, while countries in
the Horn of Africa have in addition to other challenges, experienced sustained droughts
and famine. Similarly, social unrest in some countries of North Africa and Western Asia


Downside risks have
increased




113Regional developments and outlook


continues to challenge policymakers, as well as neighbouring regions and trade partners.
Critical challenges mount when social unrest leads to either direct military intervention
by other countries or economic sanctions.


The deteriorating economic situation in developed economies is also taking
a toll. Developing countries with close economic ties to the United States and Europe
have seen less-than-expected growth of exports and/or remittances. The reverberations of
financial and equity markets in the developed world have caused greater volatility of capi-
tal flows, exchange rates and equity markets, particularly in Latin America and the open
economies of East Asia. This outcome reduces the freedom of policy makers to operate.


The outlook, even if more positive in the baseline than that of other regions,
remains uncertain and subject to downside risks. This is particularly the case if combina-
tions of sluggish global trade activity, declining international prices, unremitting unem-
ployment, high food prices, inflationary pressures, fiscal constraints and/or volatility of
exchange and equity markets unleash a chain of downward pressure.


Africa: growth remains on a high,
but uneven and uncertain path


Africa is forecast to see an increase in its overall growth from 2.7 per  cent in 2011 to
5.0  per  cent in 2012, marking a pronounced recovery from the disruptions caused by
political unrest, as well as a return to the solid growth trend that had emerged after the
economic slowdown at the peak of the global economic crisis. Important driving forces
for this trend, which is forecast to lead to growth of 5.1 per cent in 2013, will be relatively
strong commodity prices, solid external capital inflows and a continued expansion of
demand and investment from Asia (see annex table A.3). However, countries across the
continent will continue to have widely divergent growth outcomes owing to a number of
circumstances, such as military conflicts, a lack of infrastructure, corruption and severe
drought conditions. In some countries, these factors will severely depress growth and,
much more importantly, will likely have a grave humanitarian toll.


Dramatic political problems and change continue to grip economic growth in
North Africa. The economy of Libya is estimated to have contracted by 22 per cent in 2011 in
the wake of recent regime change, but reconstruction is expected to drive a rebound in 2012.
Egypt, Morocco and Tunisia will all see a more pronounced increase in economic growth in
2012, largely due to the lower base for comparison in 2011 owing to the fallout from political
unrest. However, economic performances will remain constrained by the uncertain political
conditions in the subregion, negatively affecting the tourism sector in particular.


In sub-Saharan Africa, South Africa is forecast to see stronger economic
growth in 2012, underpinned by favourable external demand, continued fiscal stimu-
lus and rising consumption driven by higher wages. Elevated oil prices will continue to
create significant upside potential for oil-producing economies such as Angola, Ghana
and Nigeria. However, infrastructure shortfalls, especially in the energy sector, as well as
political instability in the Niger Delta will prevent Nigeria from exploiting its full growth
potential. In Angola, the start of operations at a new liquefied natural gas project will
boost growth in 2012.


In East Africa, Kenya will see continued strength in its headline GDP growth
figure, driven by infrastructure investment, the expansion of the telecommunication sec-
tor and increased banking participation rates. Similarly, Uganda is expected to see solid


Regional growth increases,
albeit unevenly


North Africa should see
a post-conflict growth
bounce, but important
uncertainties remain


South Africa and other
energy producers
continue to grow


Parts of East Africa are
facing severe drought,
exacerbating hunger




114 World Economic Situation and Prospects 2012


growth on the back of large energy investments, for example, in a new refinery project,
although political unrest poses an increasing downside risk. Strong growth in Ethiopia
will reflect continued infrastructure improvements, especially in the energy sector, which
overshadow the negative impact of drought conditions on agricultural output in some
areas. In contrast, large areas in the Horn of Africa have been hit by a severe drought
that is taking a high humanitarian toll, forcing many people to flee their home areas
and prompting the United Nations to officially declare the situation a famine (box IV.2).
Conditions are especially precarious in Somalia, where a combination of drought, poverty
and military conflict have trapped many people in life-threatening situations where sur-
vival is tied to external assistance.


Drought in the Horn of Africa takes
a heavy human and economic toll


The drought and its human and economic impacts


East Africa—particularly the Horn of Africa, which includes Eritrea, Ethiopia, Djibouti and Somalia—is
experiencing the worst drought in 60 years, caused by a prolonged lack of rain (for two consecutive
seasons) and resultant dry conditions since late 2010. The drought has severely degraded vegetation
throughout the region and depleted pastoral land, leading to serious crop failure and the loss of
thousands of livestock.a South-eastern Ethiopia, northern and eastern Kenya, and southern Somalia,
are the worst affected areas. The severity and scale of the drought has raised concerns because
the majority of the population (80 per cent) in this subregion depend upon crops and livestock for
their livelihoods and food security, but only about 1 per cent of the arable land is irrigated.b While
droughts are not uncommon in the area, a spike in the prices of food staples and an unusually dry
climate have deepened the severity of the impact of the most recent drought. In the case of Somalia,
a protracted military conflict has compounded the crisis.


The drought has led to a humanitarian crisis and heavy economic costs. Currently, more
than 13 million people are estimated to be in need of emergency food aid and livelihood assistance
in Djibouti, Ethiopia, Kenya and Somalia.c Somalia has been suffering the most, the food crisis there
having escalated to famine in parts of the central and southern regions of the country.d In 2011,
for example, the cereal crop harvest in southern Somalia was estimated at only 19 per cent of total
production in 2010. This has forced hundreds of thousands of Somalis to seek refuge in Ethiopia and
Kenya, where the host population itself faces a severe food security crisis.


The drought has induced a sharp rise in prices of food staples and, hence, overall infla-
tion rates, creating severe hardships for both the rural and urban populations of the region. In Kenya,
for example, inflation has spiked to double digits because of significantly increased food prices. The
affected countries are also facing significant fiscal pressures due to increased public spending on
emergency food supplies, the cost of which is only partially covered by international agencies re-
sponding to the drought. Because of the dependence on hydroelectricity, many of these countries
have faced power shortages and will consequently face higher import bills as they are forced to buy
fuel to facilitate power generation.


The economic and social impacts of the drought will last well beyond the immediate
future. The already high poverty levels in the region will most likely rise because of the dependence
on pastoralism.e Recovering lost livestock, which is the region’s essential economic asset, will take
several years. The acute malnutrition suffered by the population is likely to have an irreversible toll on
the health of children and adults alike. Moreover, limited food, animal feed and water resources may
fuel tensions and escalate existing political conflict and instability in the area.


Underlying factors


Although the region has long been plagued by cyclical drought because of its arid and semi-arid
climate, the onset of the current humanitarian crisis and famine is a direct result of a combina-
tion of these natural disasters, failed policies, recurrent conflicts and an adverse global economic


Box IV.2


a Food and Agriculture
Organization of the United
Nations (FAO), “Emergency


in the Horn of Africa”, August
2011, available from http://


www.fao.org/crisis/horn-
africa/key-documents/en/.


b Ibid.


c World Bank, “Drought in
the Horn of Africa”, Situation


Brief, No. 5 (Washington,
D.C., 12 September 2011).


d See World Food
Programme website


on Horn of Africa crisis,
available from http://www.


wfp.org/crisis/horn-of-africa,
accessed on 7 October 2011.


e World Bank, op. cit.




115Regional developments and outlook


Inflation rates are expected to fall back slightly on average across the continent
in 2012, following a more pronounced impact of higher fuel and food prices in 2011. The
Communauté Financière Africaine (CFA) franc zone is expected to see average inflation
of less than 4 per cent in 2012 assuming normal forecast harvest patterns. At the other
extreme lies West Africa, where inflation will recede slightly but remain in solid double
digits in 2012. In Nigeria, for example, strong Government spending and high liquidity
will remain sources of inflationary pressure, implying a continued tightening stance by
the central bank. Similarly, Ghana will also see double-digit inflation of about 10 per cent
in 2012, partially driven by subsidy cuts and wage increases. However, a tighter fiscal


Inflation in the CFA franc
zone remains moderate
while the rest of West Africa
copes with double-digit
rates


environment. While the majority of the population depend upon rain-fed crops and livestock for a
living, public investment in agriculture has remained low or even absent in rural areas.


Prolonged regional conflicts and political instability have resulted in insufficient social
safety nets. There has been no public spending on agricultural infrastructure and social protection
programmes in Somalia because of the lack of governance. The political situation in Somalia is so
dire that it has, at times, prevented United Nations humanitarian assistance from reaching the most
drought-affected people in a timely manner.


While the people of the region have traditionally coped well with occasional droughts,
the population has expanded rapidly in recent years, putting increased pressure on local farm and
pastoral lands and an already fragile ecosystem. Adverse weather conditions, caused by global cli-
mate change, have exacerbated this trend. To meet the expanding food consumption gap, countries
in the region have relied on food imports and food aid, solutions which have often proved to be
unsustainable.


Short- and long-term responses to the drought


Responding effectively to the humanitarian emergency requires implementing short-term and
long-term interventions simultaneously.f The short-term interventions should ensure that food se-
curity needs are fully met, by providing and expanding social safety nets that protect vulnerable
households and their livestock assets from the drought and rising food prices. Since the onset of the
drought, various United Nations agencies, along with other international organizations, have been
engaged in food distribution and other humanitarian assistance. However, the unstable political situ-
ation and infrastructure deficit are hindering the smooth flow of foreign aid to those people most in
need in some areas of Somalia.


In terms of long-run solutions, a permanent peace settlement of the political conflict
in Somalia is the precondition for any success of relevant economic or social policies in the Horn
of Africa. At the subregional level, long-term interventions should focus on addressing the tech-
nical and policy environment that limits the region’s potential to design a sustainable livelihood
system conducive to arid and semi-arid climates. Concerted efforts are also required in order to build
regional economic resilience to negative shocks, such as adverse weather conditions, by support-
ing intraregional markets and expanding intraregional, as well as intra-African, trade to ensure the
availability of affordable food staples to countries facing shortages from other parts of the region.
Regional coordination institutions and mechanisms are essential in this regard. In this context, in early
2011, the United Nations Economic Commission for Africa (ECA) led the initiative to establish a food
security programme for East Africa, which was anchored in four components involving agricultural
markets, research and technology, natural resource management and social safety nets.g


For individual countries in the region, emphasis should be placed on designing eco-
nomic and social policies that establish and strengthen their long-term capability to enhance food
security and ameliorate the adverse impacts of droughts. Governments should scale up public
spending on agricultural infrastructure and technologies, and intensify efforts to continue to diver-
sify their economies away from heavy dependence on agriculture and natural resources. In regard
to social policy, countries need to expand the coverage and depth of social safety nets in order to
mitigate the impact of droughts as well as external shocks.h


Box IV.2 (cont’d)


f See goodwill message
by Abdoulie Janneh,
Executive Secretary of the
United Nations Economic
Commission for Africa,
to the FAO meeting on
“Emergency in the Horn
of Africa: Follow-up and
Response Actions”, held in
Rome, Italy on 18 August
2011, available from http://
www.fao.org/fileadmin/
templates/horn_africa18/
documents/Goodwill_
Message_Abdoulie_Janneh.
pdf.


f The United Nations
High-level Task Force on
the Global Food Security
Crisis, “Comprehensive
Framework for Action”, July
2008, provides guidance on
building resilience to food
insecurity at the country
level.


g Ibid.




116 World Economic Situation and Prospects 2012


policy and strong agricultural output may contribute to a relatively more stable inflation
picture. In East Africa, the catastrophic drought has also led to a strong jump in food
prices. However, the baseline envisages more normal harvest patterns in 2012, resulting in
reduced inflation pressure. In South Africa, rising wages and electricity rates are expected
to be partially offset by spare capacity in some sectors, resulting in an inflation rate of
about 5.3 per cent in 2012. Across the continent, monetary policy is expected to maintain
a tightening bias over the forecast horizon.


Fiscal policy remains subject to a number of frequently conflicting factors. The
need for significant investment in infrastructure and a lack of employment opportunities,
compounded by fallout from the global economic crisis, are expected to underpin con-
tinued targeted increases in fiscal spending. At the same time, a number of Governments
will likely maintain a bias against substantial increases of spending, seeking to achieve
the sustainability of public finances. For example, South Africa is projected to register
a budget deficit of about 5 per cent of GDP in 2012, but moderation of fiscal spending,
combined with positive growth prospects, is expected to lead to a subsequent decline in
the budget deficit to about 4 per  cent of GDP, while the debt level will remain below
50 per cent of GDP. The assumed slight decline of oil prices will limit fiscal space for oil
exporters such as Nigeria, whose budget deficit is expected to remain at about 4 per cent
over the forecast period.


In North Africa, Egypt, Morocco and Tunisia are expected to see lower cur-
rent-account deficits in 2012 on the back of relative improvements in the tourism sector
following disruptions due to regional political unrest. At the same time, a recovery in oil
production in Libya is projected to boost its current-account surplus to about 20 per cent
of GDP in 2012. In sub-Saharan Africa, oil producers such as Nigeria and Angola are
expected to see sharply lower current-account surpluses in 2012, with stronger private
consumption, as well as infrastructure investments, underpinning relatively strong im-
port growth. Similarly, in South Africa, strong capital good imports combined with weak
demand from developed countries on the export side likely will result in a deeper current-
account deficit in 2012. However, a major risk in this respect is a sharper-than-expected
slowdown in China, the largest export destination for South Africa, which would lead to
an even bigger external deficit.


High urban unemployment rates and, consequently, poverty remain a major
problem across the continent despite the relatively solid expected growth trajectory. The
underlying causes include a lack of economic diversification, particularly into activities
generating higher value added, a shortage of skilled workers and low productivity. In
South Africa, for example, unemployment will decrease only marginally in 2012 and
2013, remaining above 20 per cent in both years. In North Africa, high unemployment,
especially among youth, was a major catalyst for the protests that led to the change in
Government in Egypt and Tunisia. In the short term, the disruption to economic activity
resulting from the political change will lead to a further increase in unemployment, but
more significant reforms, including privatizations, could provide significant impetus for a
more dynamic private sector. Correspondingly, in Egypt, for example, the unemployment
rate will continue to rise, from 9 per cent in 2010 to about 12 per cent in 2011, before
moderately receding to about 10 per cent after 2012.


The outlook is subject to a number of downside risks. For example, a more pro-
nounced slowdown in growth and the debt crisis in the developed countries might push
the global economy into stagnation, while emerging economies are at risk of overheating.
Under these adverse developments, Africa’s external sector may contract significantly if


The continuing need for
further fiscal policy action


is facing a bias towards
fiscal restraint


External balances should
improve in North Africa,


but may deteriorate in
sub-Saharan Africa due to


increased imports


Unemployment and
poverty remain high


despite positive headline
growth figures


Downside risks are tied to
conditions in developed


countries and adverse
weather




117Regional developments and outlook


commodity demand and prices, as well as tourism receipts, decrease. In parallel to this,
flows of official development assistance (ODA), FDI and remittances would all likely fall
as well, negatively affecting African financial markets. Adverse weather conditions are
another significant downside risk given the large role of agriculture across the continent.


East Asia: growth drivers lose momentum


East Asia’s strong growth momentum moderated in 2011, particularly in the second half of
the year, as the region felt the impact of increased global uncertainty and weaker demand
in developed economies (figure IV.6). The region’s GDP is estimated to have expanded
by 7.2 per cent in 2011, down from 9.2 per cent in 2010. With exports projected to slow
further in the coming quarters, average growth is forecast to decline to 6.9 per cent in
2012 and 2013 (see annex table A.3).


While the region’s recovery from the global financial crisis was initially driven
by a rebound in exports and investment, private consumption has become a more im-
portant factor over the past year. In almost all economies, with the notable exceptions of
Thailand and Viet Nam, consumption growth gained further strength in 2011. This trend
has been supported by rising wages and incomes, as well as persistently low real interest
rates. Export growth slowed considerably in the course of 2011, as demand in the major
developed economies weakened.


Since this trend is projected to persist in 2012, countries with large domestic
demand bases, notably China and Indonesia, will be in a better position to maintain
high growth than the more export-oriented economies. In Thailand, the worst floods in
half a century caused major damage to agriculture and manufacturing, lowering full-year


Growth is forecast to
moderate further…


…as exports and
investment lose
momentum


Domestic consumption
is helping to offset falling
developed country demand


Figure IV.6
GDP growth rates in selected East Asian economies, 2011-2012


Percentage


China


East Asia


Singapore


Hong Kong SARa


Indonesia


Viet Nam


Malaysia


Taiwan
Province of China


Thailand


Philippines


Republic of Korea
2011


2012
4.1


3.6


4.4


3.9


4.4


4.1


4.0


6.0


6.3


6.9


8.7


2.3


3.9


4.3


4.4


4.6


4.9


5.0


5.8


6.5


7.2


9.3


0 1 2 3 4 5 6 7 8 9 10


Source: UN/DESA, based on
data from Project LINK.
a Special Administrative
Region of China.




118 World Economic Situation and Prospects 2012


growth in 2011 by a significant margin. China’s economy remains the engine of growth in
the region, expanding by 9.3 per cent in 2011. In the outlook, growth in China is expected
to slow gradually to 8.7 per cent in 2012 and 8.5 per cent in 2013, as strong consumption
growth will only partly offset the slowdown in investment and exports.


Unlike in other regions, labour market conditions in East Asia remain favoura-
ble for now, as employment in the manufacturing and services sectors continues to increase
in 2011 amid strong domestic demand and solid exports. In most economies, unemploy-
ment rates are near or below the pre-crisis levels of 2007-2008, but subject to risks of a
turnaround resulting from falling developed country demand. The Republic of Korea has
the lowest unemployment rate among the Organization for Economic Cooperation and
Development (OECD) countries, estimated at 3.1 per cent in October 2011. Unemployment
rates in Hong Kong Special Administrative Region (SAR) of China and Indonesia fell to
decade lows of 3.2 and 6.8 per cent, respectively, in 2011. However, despite recent progress,
the proportion of vulnerable employment in total employment remains high in several
countries, notably Indonesia, Thailand and Viet Nam. Unemployment rates are expected
to show little change in 2012 and 2013, as growth is projected to remain fairly robust. Real
wages continued to move up in 2011 on the back of productivity gains and policy measures,
such as minimum wage hikes. This trend is expected to continue in the outlook period,
especially in the economies with lower per-capita income and large domestic demand bases
such as China, Indonesia and Viet Nam. China’s 12th Five-Year Plan (2011-2015) aims to
increase the minimum wage by at least 13 per cent per year.


After accelerating earlier in the year, consumer price inflation moderated in
the second half of 2011, as food and commodity price gains eased. However, price pres-
sures abated only slowly, and in many economies inflation has remained above the central
bank’s target range. For the region as a whole, consumer price inflation is estimated to have
averaged 5.1 per cent in 2011, up from 3.2 per cent in 2010 and ranging from 1.5 per cent
in Taiwan Province of China to 18.5 per cent in Viet Nam. In most economies, higher
food prices were the main contributor to accelerating consumer price inflation. The sharp
upturn in food prices reflects the impact of supply disruptions, higher input costs (par-
ticularly for fuel) and rapidly growing demand in the wake of rising incomes. Inflation
has also been fuelled by strong credit growth, notably in China and Viet Nam, significant
capital inflows during the first half of 2011, and higher inflationary expectations. While
robust consumption demand across East Asia is likely to be sustained by strong wage
growth, a softening of international commodity prices will likely reduce inflationary pres-
sures in the outlook. Average consumer price inflation is projected to decline gradually, to
3.9 per cent in 2012 and 3.4 per cent in 2013.


With the world economy facing a renewed downturn and price pressures across
the region slowly easing, most central banks, including the People’s Bank of China, have
gradually started to shift their focus towards stimulating economic growth and away from
fighting inflation. Bank Indonesia has been the most proactive in supporting domestic
demand, cutting its main policy rate by 75 basis points in the fourth quarter of 2011. The
recent policy shift in the region follows a period of gradual monetary tightening in the form
of interest-rate hikes and increases in reserve requirements. The People’s Bank of China and
the Bank of Korea raised the main interest rates five times between July 2010 and July 2011,
by a total of 125 basis points each. Generally, however, central banks remained reluctant to
tighten monetary policy aggressively owing to concerns over the global recovery and fears
that interest-rate hikes could stimulate short-term capital inflows. Thus, in most countries,
average real interest rates were negative in 2011. In 2012, East Asia’s central banks are
expected to further ease monetary policy unless global economic conditions improve.


Labour market conditions
remain favourable


Inflation has started to
ease, but remains high


Central banks have started
to shift their focus towards


growth and away
from inflation




119Regional developments and outlook


Most East Asian economies continue to have strong fiscal positions, with
relatively low levels of public debt. Government spending expanded at a solid pace in
2011, albeit more slowly than in the aftermath of the crisis. To mitigate the impact of
slowing exports, several Governments, including those of Indonesia, the Philippines and
Thailand announced new, moderate-sized fiscal stimulus measures in the fourth quarter
of 2011. After fiscal balances across the region improved considerably in 2010 as rapid
economic growth boosted revenues, trends were more mixed in 2011. In the Philippines,
the Republic of Korea and Singapore, budgets strengthened further, with the latter
two countries and Hong Kong SAR registering a fiscal surplus. By contrast, Indonesia,
Malaysia and Thailand saw a slight widening of deficits as Government spending increased
markedly. China’s central Government deficit stood at about 1.5 per cent of GDP in 2011.
Though precise local and state government deficits are not known, and may even be larger
in the aggregate than the deficit of the central Government, the general view is that the
fiscal situation is very manageable. While most Governments have ample fiscal space,
large-scale stimulus packages may be implemented only if the growth and employment
outlook deteriorates significantly.


East Asia continued to see strong growth in exports and imports in 2011, de-
spite some moderation in the second half of the year as demand from developed economies
weakened and international commodity prices eased. Compared to 2010, total nominal
export receipts are estimated to have increased by about 20 per cent in China, Indonesia
and the Republic of Korea. This primarily reflects rapidly growing trade within the region,
as well as with other emerging countries. Sluggish global demand for electronics adversely
affected the region’s export sectors, most notably in the Philippines, where electronics
shipments account for more than half of total exports.


In most economies, import spending increased at a rate similar to that of export
revenues, which resulted in largely unchanged trade balances in 2011. With the exception
of Viet Nam, all East Asian economies recorded a current-account surplus in 2011. China’s
current-account surplus, which had reached 10.6 per cent of GDP in 2007, declined to
about 3.5 per cent of GDP in 2011. Since demand in developed economies is projected to
remain sluggish in the outlook period, imports are expected to grow faster than exports,
leading to a slight narrowing of external surpluses across the region.


East Asia experienced significant net outflows of portfolio capital in the third
quarter of 2011 amid increased risk aversion among global investors and concerns that
the crisis in developed economies could severely affect growth across the region. These
outflows, mostly in the form of equity investment, led to a drop in the value of national
currencies against the dollar. This marks a sharp reversal of the trend observed over the
past two years, when the region saw large portfolio investment inflows resulting in consid-
erable appreciation pressure on national currencies. To dampen the volatility of short-run
capital inflows and limit currency appreciation, several economies, notably Indonesia, the
Republic of Korea, Taiwan Province of China, and Thailand have been imposing new
capital management measures since 2009. Despite the recent episode of portfolio capital
outflows, East Asia is set to record significant net inflows of private capital for 2011 as
a whole. Given the region’s comparatively strong growth outlook and widely available
liquidity, this trend is likely to continue in 2012 and 2013, with most currencies in East
Asia projected to appreciate gradually.


While East Asia is not immune to a downturn in developed economies, the
region is in a strong position to tackle the challenges arising from weaker external de-
mand. However, deep and prolonged recessions in major developed economies would


Fiscal positions remain
strong as Government
spending expands


Trade activity has started
to slow down


Portfolio capital flows are
still volatile, leading to
more capital controls


Slower growth in
developed economies and
China pose downside risks




120 World Economic Situation and Prospects 2012


have a severe impact on economic growth in the region as falling exports and increased
uncertainty could trigger a slowdown in private investment and consumption. In addi-
tion, should China’s growth in 2012-2013 decelerate to the 7 per cent target rate of the
12th Five-Year Plan (2011-2015), the rest of the region would also see a more pronounced
slowdown than currently expected.


South Asia: robust domestic demand drives growth


Economic growth in South Asia moderated in 2011, primarily owing to a slowdown of the
Indian economy. After expanding by 7.2 per cent in 2010, real GDP is estimated to have
grown by 6.5 per cent in 2011. The region is expected to remain fairly resilient to the global
economic downturn and sustain its growth momentum in the outlook period. Driven by
robust domestic demand, average growth is forecast to accelerate slightly to 6.7 per cent in
2012 and 6.9 per cent in 2013 (see annex table A.3).


Private consumption and investment continued to be the main growth driv-
ers in the region, with domestic demand supported by strong agricultural output and
robust remittance inflows. Strong exports, particularly in the first half of the year, and a
solid expansion of Government spending also contributed positively to growth. However,
growth disparities within the region remained wide with Bangladesh, India and Sri Lanka
recording GDP growth of 6.5 per cent or higher, and the Islamic Republic of Iran, Nepal
and Pakistan registering growth rates of less than 4 per cent.


India’s economy has slowed over the past year as monetary policy was tight-
ened in order to bring down inflation. With domestic demand moderating, GDP growth
is estimated to have declined from 9 per cent in 2010 to 7.6 per cent in 2011. Assuming
a gradual easing of inflationary pressures and an end to the monetary tightening cycle,
growth is forecast to increase slightly to 7.7 per cent in 2012 and 7.9 per cent in 2013.
Buoyant domestic demand and a recovery in exports underpinned strong growth in
Bangladesh and Sri Lanka in 2011. In the Islamic Republic of Iran, Nepal and Pakistan,
long-standing structural problems such as weak policy implementation, security concerns
and low investment in physical and human capital constrain growth. In all three coun-
tries, economic conditions are expected to improve slightly in the outlook period, but
growth will remain well below potential.


The latest labour force surveys in South Asia provide a mixed picture. While
the employment situation in the fast-growing economies of India and Sri Lanka has im-
proved, it remained weak in other parts of the region, notably in the Islamic Republic
of Iran and crisis-ridden Pakistan. In Sri Lanka, the unemployment rate declined to an
all-time low of 4.3 per cent in early 2011 on the back of a strong expansion in the services
and industry sectors. By contrast, in the Islamic Republic of Iran and Pakistan, sluggish
growth over the past few years has had a negative impact on employment. The average
unemployment rate has increased in the Islamic Republic of Iran from 11.9 per cent in the
fiscal year 2009-2010 to 14.6 per cent in 2010-2011 and in Pakistan from 5.6 per cent in
the fiscal year 2009-2010 to 6.0 per cent in 2010-2011.


In addition to elevated unemployment rates, South Asia’s labour markets face
deep-rooted structural challenges, such as the highest share of vulnerable employment
among all developing regions and widespread youth unemployment. Moreover, in all
countries of the region, unemployment rates among women are far higher than among
men.


Economic growth is
expected to remain


resilient….


…but is diverging widely
across South Asia


Employment is improving
in India and Sri Lanka but
remains weak elsewhere


in the region




121Regional developments and outlook


Consumer price inflation remained high across South Asia in 2011, present-
ing a major challenge for policymakers. Regional inflation averaged 10.3 per cent, down
only slightly from 11.6 per cent in 2010 and ranging from 7.0 per cent in Sri Lanka to
17 per cent in the Islamic Republic of Iran. The increases in consumer prices were driven
by a variety of factors, including higher international food and energy prices, domestic
supply shortages, the reduction of fuel subsidies in several countries (including the Islamic
Republic of Iran) and buoyant demand conditions in Bangladesh, India and Sri Lanka.
In the outlook, inflation is projected to decline slowly, averaging 9.1 per cent in 2012 and
8.0 per cent in 2013, as pressure from higher food and commodity prices eases and the
impact of monetary policy tightening is felt in Bangladesh and India. However, there are
substantial upside risks to inflation, including renewed supply shocks such as insufficient
monsoon rains and a rise in international commodity prices.


Facing high and persistent inflation, several central banks in South Asia,
most notably the Reserve Bank of India, continued to tighten monetary policy in 2011.
However, with risks to the world economy again rising, the focus of monetary authorities
has started to shift towards supporting domestic demand. The Reserve Bank of India
signalled an end to the current tightening cycle in October 2011 after hiking its key policy
rates for the thirteenth time since early 2010. In Pakistan, a slowdown in inflation during
the third quarter of 2011 led the State Bank to cut its main policy rate from 14 per cent to
12 per cent in an attempt to stimulate private investment and growth. Bangladesh Bank
by contrast, stepped up measures to contain accelerating inflation, lifting interest rates
and restraining credit flows, especially to sectors considered unproductive. Looking ahead,
central banks are likely to continue to move towards a growth-supportive monetary policy
if inflationary pressures ease.


Despite some progress in recent years, fiscal deficits continue to be high in
most South Asian countries, particularly in India, Pakistan and Sri Lanka (figure IV.7).
Government spending rose significantly in 2011 as development expenditures (such as
education, health and infrastructure spending), non-development expenditures (such as
civil service pay and defence spending) and interest payments increased. Pakistan recorded
a deficit of about 6 per cent of GDP in the fiscal year 2010-2011, missing the International
Monetary Fund (IMF) target of 4.7 per cent. This can be mainly attributed to the dev-
astating floods in 2010, higher security expenditures and failed efforts to implement a
general sales tax due to domestic political opposition. India’s fiscal deficit declined to
5.1 per cent of GDP in the fiscal year 2010-2011, as strong growth boosted tax revenues
and the sale of 3G telecommunications licences increased non-tax revenues. However,
India’s Government is unlikely to reach the deficit target of 4.7 per cent of GDP for the
fiscal year 2011-2012, as slowing growth is leading to a shortfall in tax revenues and the
disinvestment of stakes in State-run companies is put on hold.


After recovering rapidly in the first half of 2011, South Asia’s export sectors
experienced a moderation in demand owing to deteriorating conditions in developed
economies. Nonetheless, in most countries of the region, total export earnings in 2011
were about 20 per cent higher than a year ago. Bangladesh, Pakistan and Sri Lanka ben-
efited from a strong recovery in demand for textiles and garments, partly as a result of
significant cost increases in China and political turmoil in North Africa and Western Asia.
In India, exports of engineering goods, petroleum products, gems and jewellery soared.
High oil and commodity prices and strong domestic demand boosted import spending in
2011, notably in Bangladesh, India and Sri Lanka. Since, in most countries, imports had
started from a higher base than exports, merchandise trade deficits widened further in


Inflation remains high,
but is projected to decline
slowly


Monetary policies diverge
across countries depending
on their inflation rates


Fiscal deficits remain high


Trade deficits are widening
further despite strong
export growth




122 World Economic Situation and Prospects 2012


2011. This was partly offset by improvements in the services balance and higher current
transfers, although workers’ remittances grew at a slower rate than in previous years. In
2012, export growth is likely to decelerate, resulting in a further widening of trade deficits
in most countries.


A prolonged recession in Europe could have a significant impact on growth
across South Asia as European countries continue to be a key export market for the region
and a main source of tourism revenues. Renewed increases in international commodity
prices also represent a risk for South Asia, as this would complicate fiscal deficit reduction
and monetary policy decisions while also leading to a widening of current-account deficits.


Western Asia: growth trajectories shaken by political unrest


Western Asia’s economic prospects have been subject to high uncertainty since the start
of the Arab spring. As spreading political unrest pushed up oil prices despite weakening
global aggregate demand, the economic performance of net oil exporters and importers
diverged sharply in 2011, the former growing much faster than the latter. Violent clashes
further affected economic activity in several countries. In Israel and Turkey, robust eco-
nomic activity weakened during the second half of the year. In 2012, regional growth is
forecast to decline from 6.6 per cent to 3.7 per cent with economic activity slowing down
in most countries (see annex table A.3 and figure IV.8).


Economic growth in oil-exporting countries strongly benefited from rising oil
prices, as well as strong public spending and private consumption. Amidst growing vola-
tility and widening spreads between two of the major oil price benchmarks (see chapter
II), average yearly price levels have reached unprecedented highs in 2011 with the basket


A prolonged recession in
Europe will pose serious


downside risks


Political unrest is having
strong asymmetric effects


on regional economies


Growth in oil-exporting
countries is driven by rising


oil prices, public spending
and domestic demand


Figure IV.7
Central Government deficits in selected
South Asian countries, fiscal years 2009-2011


Percentage of GDP


India


Pakistan


Sri Lanka


Bangladesh


2009


2010
2011


4.2


6.9


6.0


5.6


3.7


7.9


6.3


5.1


4.0


9.9


5.3


6.3


0 2 4 6 8 10 12


Sources: UN/DESA, based on
data from national sources,
the Economist Intelligence


Unit and the IMF.
Note: In India, the fiscal year


begins in April; in Bangladesh
and Pakistan, the fiscal year


ends in June; and in Sri Lanka,
the fiscal year corresponds to


the calendar year.




123Regional developments and outlook


price of the Organization of the Petroleum Exporting Countries (OPEC) remaining above
$100 per barrel (pb) during most of the year compared to an average of $77 pb in 2010.4
Furthermore, when the conflict in Libya reduced global oil supply by 1.6 million barrels
per day (mbd), Bahrain and the United Arab Emirates stepped up oil production, as did
Saudi Arabia, which increased its crude supply to a record high of 9.8 mbd in August,
well over the OPEC quota of 8.05 mbd. Qatar also benefited from rising energy prices as
its liquefied natural gas production increased by 40 per cent during the first half of 2011.


The generous social spending measures announced by many Arab Governments
in reaction to popular protests further boosted economic growth by increasing public and
private consumption. As a result, most Gulf Cooperation Council (GCC) countries, as
well as Iraq, fared even better in 2011 than they did in 2010. In 2012, growth is forecast
to decline on the back of fading political turmoil and slackening economic activity in
developed economies.


Lasting protests and violent clashes with authorities have dented growth in
several countries. Bahrain, which promptly responded with military support from GCC
countries to protests that had erupted in March, will experience positive though lower-
than-expected growth in 2011. The unresolved sectarian divide, however, may discourage
investors and harm Bahrain’s ambition of becoming a regional hub for financial and other
services. Yemen, as well as the Syrian Arab Republic, registered negative growth in 2011.
Prospects for 2012 are dependent upon domestic political developments and the potential
internationalization of Western economic sanctions.


Fuel importers experienced continued growth on sometimes shaky ground.
Modest economic support measures stimulated private consumption on the back of


4 See chap. II, section on the oil market for further discussion based on the analysis of Brent price.


Unresolved domestic
political issues may hamper
growth in some countries


Oil-importing countries
are expected to see slower
growth


Source: UN/DESA, based on
data from Project LINK.


Figure IV.8
Diverging GDP growth trajectories in Western Asia, 2000-2013


-6


-4


-2


0


2


4


6


8


10


2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013


Net oil exporters
Israel and Turkey
Other net oil importers


Percentage




124 World Economic Situation and Prospects 2012


growing budget deficits. Regional unrest, however, in addition to rising oil prices and im-
port bills, affected trade and tourism revenues, most starkly in Lebanon. In Turkey, strong
private consumption supported economic activity, especially in the construction, trade,
transportation and communication sectors. The economy grew by 7.5 per cent in 2011, but
momentum faded during the second half of the year. The Turkish economy, along with
that of Israel and many other countries in the region, is expected to see its growth slowing
down in 2012 in the context of weakening external demand.


Recent political unrest highlights the poor employment situation as well as the
common problematic features of many labour markets in the region. Despite extremely
low female participation rates, unemployment rates in the region are among the highest in
the world, especially among educated youth. At the same time, migrant workers represent
on average more than 70 per cent of the labour force in GCC countries. These conditions
point, inter alia, at a longstanding lack of coherence between education and economic de-
velopment policies. In order to counter the threat of spreading unrest, many Governments
promised to quickly create jobs for nationals in the public sector and increase wages. Saudi
Arabia is trying to impose quotas for nationals in private businesses.


In Turkey, after peaking above 14 per cent in 2009, the unemployment rate os-
cillated around 10 per cent during 2011. In Israel, unemployment receded to 5.6 per cent,
below its pre-crisis level. Despite this apparent improvement, in July and August of 2011,
rising income disparities and the high cost of living led the struggling working class to
organize the largest social protests the country has experienced since its creation.


During the first half of 2011, inflation was on the rise in all countries of the
region as a result of increasing food and energy prices. In countries with pegged currencies,
the weakness of the dollar further contributed to the rise in imported inflation. Over the
same period, price levels rose significantly in Israel and Turkey driven by strong private
consumption and credit growth. In Israel, this was compounded by the dramatic rise in
housing prices, which have soared by 60 per cent since 2007. During the second half of the
year, inflationary pressures in the region lessened with the weakening of aggregate demand
and receding world food and energy prices. In Turkey, however, inflation remained above
the central bank’s target, and is expected to moderate further in 2012.


Monetary authorities in the region pursue different objectives. In most Arab
countries, currencies are pegged to or closely managed against the dollar, and monetary
policy is tied to the stance of the Fed in order to limit unhealthy carry trades. Inflation-
targeting led the Bank of Israel to raise its policy rate four times in a row in 2011 before
lowering it twice as weakening demand from its main export markets threatened to affect
domestic demand. Like other emerging markets, Turkey has to deal with the effects of
large capital inflows and outflows. Since the end of 2010, the central bank’s policy mix
has consisted of capping loan growth instead of raising interest rates to avoid overheat-
ing. This initially allowed it to simultaneously stabilize inflation while discouraging carry
trade. However, as capital kept moving out of the country, the effective nominal exchange
rate depreciated by almost 20 per cent and pushed up imported inflation. Indeed, as ex-
ternal demand declined in an increasingly depressed international environment, import
demand remained high given continued strong domestic demand growth and typically
slow responsiveness of imports to exchange-rate changes. In October, annual inflation
rose sharply to 7.7 per cent, up 1.5 percentage points compared to the previous month.
Although the central bank forecasts inflation of 8.3  per  cent this year, 2.8 percentage
points above the target, it has kept the policy interest rate unchanged in a bid to sustain
economic growth. Monetary tightening occurred, however, through the sharp rise in


Despite low female
participation in labour


markets, unemployment
remains high, especially


among youth


Inflationary pressures
have weakened


Many countries are pegged
to the dollar, while others
are tightening policies to


deal with inflation




125Regional developments and outlook


October of the overnight rate from 5.75 per cent to 12.5 per cent, while reserve require-
ments were loosened to ensure adequate liquidity.


Fiscal policy in Western Asia was significantly affected by political turmoil,
forcing rulers to devise unprecedented social spending measures to quench claims for
domestic political reform. In Saudi Arabia, for instance, two extraordinary spending
packages worth a combined 30 per cent of GDP have been announced, which aimed to
increase employment, wages and consumption in the short run as well as address housing
shortages in the long run. Other countries threatened by political unrest adopted similar,
although more modest spending packages. Such measures were financed out of existing
budget surpluses in oil-exporting countries, but they widened fiscal deficits in oil import-
ing countries, whose Governments had to recur to international development assistance
and financial markets to raise funds. Policies aimed at increasing consumption instead
of stimulating economic diversification and productivity growth may become a drag on
public budgets and economic development over the long run.


External balances in fuel-exporting countries showed solid surpluses in 2011
as a result of the combination of higher oil prices and increased production. Oil importing
countries saw their import bills rise substantially with the oil price increase. Their external
environment worsened further with the region-wide repricing of risk that weighs more
on the oil-importing countries. All countries registered portfolio investment outflows,
and FDI into the region is estimated to have declined for the third consecutive year, by
14 per cent in 2011. The impact in oil-exporting countries, however, has been cushioned
as the financing for large-scale oil projects remained uninterrupted.


In Turkey, the weak lira improved the competitiveness of Turkish tradable
goods and services. However, in the context of strong domestic and weak external de-
mand, exports have not kept pace with imports, causing the current-account deficit to
widen to about 10 per cent of GDP in 2011. In Israel, exports representing about a quarter
of GDP were negatively affected by declining demand from its main export markets start-
ing in the second half of 2011, and the current-account balance may turn slightly negative
for the first time since 2002.


In the outlook, Western Asia faces three major downside risks. First, the re-
gion may be destabilized by the revival of international tensions or by sprawling domestic
political unrest. Second, if the financial woes and deeper fiscal austerity in developed
countries were to trigger a global downturn, oil prices could drop below break-even prices
for fiscal sustainability in oil-exporting countries. In the long run, inaction in relation
to the dire employment situation and, more broadly, the failure to implement effective
diversification strategies based on a more inclusive development paradigm represent major
risks to stability and prosperity in the region.


Latin America and the Caribbean:
robust but uneven recovery


Economies in Latin America and the Caribbean experienced, on average, robust growth in
2011, with an estimated 4.3 per cent increase of GDP, though this did mark a deceleration
from the 6 per cent growth rate achieved in 2010. The average masks important differences
in performance across countries (figure IV.9). Growth trends also differed starkly between
the first and second halves of the year.


South America’s GDP grew on average by an estimated 4.6 per cent in 2011.
It boomed in the first quarter of the year only to gradually decelerate thereafter. Both


Spending packages have
been devised to address
political unrest


Oil exporters continue
to have strong external
balances…


…but the rest of the region
is facing current-account
deficits


Continued political unrest,
a possible global downturn
and lack of economic
diversification pose serious
downside risks


South American growth is
robust but slowing




126 World Economic Situation and Prospects 2012


internal and external factors drove the expansion. Internally, increasing employment re-
duced poverty and inequality, thereby boosting private consumption. This occurred most
markedly in Brazil, the region’s largest and most populated economy, but also in the rest
of South America, where urban unemployment is currently lower than before the crisis.
Meanwhile, private and public investment increased too, fuelled by expanding credit and
underpinned by solid bank balance sheets. Rising commodity prices pushed up export
revenues, providing Governments with additional revenue through royalties, State-owned
commodity operations and taxes.


The economies of Mexico and Central America grew by a more moderate aver-
age of 3.8 per cent and the Caribbean grew by 3.4 per cent in 2011. On average, private
and public consumption saw a downward trend, while unemployment rates remained
virtually unchanged compared to 2010. Exports, typically a major driver of growth in
Central America and the Caribbean, were held back by the economic slowdown of the
United States and other high-income countries that are their major market destinations.
Also, several Central American and Caribbean economies heavily rely on remittances and
tourism, which decreased during the global recession and have since remained below their
long-term average as recovery in advanced economies has faltered.


Fiscal policies tightened in several South American countries in the first and
part of the second quarter of 2011. In Brazil and Peru, several stimulus programmes put in
place in response to the 2009 global crisis were phased out. In the third quarter, as fears of
overheating faded and concerns about a second global downturn mounted, Governments
announced the preparation of additional expansionary measures to be deployed in the
event of an actual new downturn. The Governments of some commodity-exporting coun-
tries, such as Chile and Peru, announced their intention to tap the funds accumulated


The recovery in Mexico,
Central America and the
Caribbean is slowing as


growth in developed
countries weakens


New fiscal stimuli under
way to counter a global


downturn…


Figure IV.9
Growth forecast for Latin America and the Caribbean, 2012


Change in percentage of GDP


Peru


Chile


Haiti


Argentina


Honduras
Trinidad and Tobago


Panama
Guyana


Dominican Republic
Guatemala


Bolivia, Plurinational State of
Ecuador


Colombia
Costa Rica


South America
Caribbean


Paraguay
El Salvador


Uruguay


Latin America and the Caribbean
Barbados


Brazil
Mexico and Central America


Cuba


Mexico
Nicaragua


Jamaica
Venezuela, Bolivarian Republic of 2.0


2.3
2.3


2.5
2.7
2.7


3.0
3.1
3.1


3.3
3.3
3.4
3.4
3.4


3.5
3.6
3.6


3.8
3.9


4.0
4.1
4.2


4.4
4.6


4.7
5.0


5.2
7.2


Source: UN/DESA, based on
data from Project LINK.




127Regional developments and outlook


during the period of rallying commodity prices and deploy additional resources to expand
social cash-transfer programmes. In November, Brazil returned to fiscal expansion with
a $1.5 billion programme targeting food purchases and consumption of other goods. In
the same month, the Government of Ecuador presented an expansionary fiscal budget for
2012 featuring a strong investment push.


Compared to 2008-2009, however, the fiscal space for large-scale counter-
cyclical measures is relatively limited. Indeed, the additional spending aimed at contain-
ing the impact of the global recession, combined with an incomplete restoration of tax
revenues, raised the public debt-to-GDP ratio by more than 5 percentage points.


On the monetary front, policy has been active, too. Monetary policies in most
parts of the region were initially characterized by repeated increases of the policy interest
rates amid fears of inflation. On average, inflation was slightly above 7 per cent in Latin
America and the Caribbean in 2011. Monetary stances have differed strongly, however.
Monetary authorities in Brazil, Chile, Colombia, Mexico, Peru and Uruguay have focused
primarily on price stability, adopting inflation targeting. Yet, they recorded consumer
price indices near the upper bound of their target range. Among these, the inflation rates
of Brazil, Peru and Uruguay were above their upper bounds, between 3  per  cent and
7.5 per cent.


In these economies, inflation remained high because of rapid growth of inter-
nal demand and rising food and asset prices. In the fourth quarter of 2011, upward pres-
sure on nominal wages intensified in Brazil. In Mexico, Nicaragua and Central America,
the impact of rising food prices on overall inflation was stronger as food expenditures
weighed more heavily on household budgets than they did in South America.


Two large economies in the region, Argentina and the Bolivarian Republic of
Venezuela, recorded double-digit inflation in 2011. In the latter, annual inflation reached
approximately 24 per cent in September 2011, driven by growing consumption and the
depreciation of the bolivar. In Argentina, inflation, as measured through the GDP defla-
tor, was 17 per cent, while nominal wages and the monetary base grew by 25 per cent and
30 per cent, respectively.


As economic activity slowed in the second and third quarters, central banks
in Brazil, Chile, Colombia and Peru changed course, interrupting tightening trends and
increasing liquidity. In Mexico, concerns over another possible downturn of the United
States economy dominated monetary policy considerations. The stance was kept accom-
modative throughout 2011.


International commodity prices recorded sustained increases in the first half
of 2011. They have slowed since, but stayed above long-term averages. On balance, terms
of trade improved on average by an estimated 6 per cent in 2011, but with commodity-
exporting countries recording large gains and commodity importers suffering losses.
Exporters of metals and minerals (Chile and Peru) benefited the most, followed by oil
and gas exporters (the Bolivarian Republic of Venezuela, Colombia, Ecuador and the
Plurinational State of Bolivia) and exporters of agricultural commodities (Argentina,
Brazil, Chile, Paraguay and Uruguay). On the other hand, when commodity prices, espe-
cially those of non-precious metals, retreated in the second half of 2011, the economies of
Chile and Peru were affected the most. Argentina was affected by the fall in grain prices.


Despite the slowdown of commodity prices in the second half of the year, early
increases allowed Jamaica, Suriname and Trinidad and Tobago, to record current-account
surpluses. Several Caribbean countries, in contrast, faced adverse conditions due to rising


…but fiscal space is more
limited for counter-cyclical
responses


Inflation and slowing
economic growth across
the region pose dilemmas
for central banks


Rising commodity prices
have helped improve the
terms of trade of primary
commodity-exporting
countries




128 World Economic Situation and Prospects 2012


food and energy prices. Haiti was hit particularly hard by higher food prices and poor
crops in 2011, and was listed by the Food and Agriculture Organization of the United
Nations (FAO) among those countries requiring external food assistance.


Asset prices also showed high volatility throughout the year. Major financial
markets in the region also suffered from contagion of the global financial turmoil during
the third quarter of 2011, reflected in a sell-off in stock markets and sudden reversals of
short-term capital flows. Speculative capital flows affected the non-banking financial sec-
tor more than Latin American banks. Banks’ balance sheets have remained solid, with a
relatively low share of non-performing loans. One concern, however, is the strong presence
of Spanish banks whose exposure in the European sovereign bonds market, especially
those of Italy and Portugal, tops €120 billion. Sovereign defaults in the euro area or further
capital requirements beyond those already under way may prompt these banks to reduce
credit or liquidate assets in Latin American operations to repatriate capital to Spain.


In order to respond to external volatility, monetary authorities, in particular
those of Argentina, Brazil, Colombia, Costa Rica, Mexico, Peru and Uruguay adopted
various forms of intervention in foreign-exchange markets. While exchange rates have
generally been free to fluctuate, several central banks intervened in the second and third
quarters of 2011 in order to mitigate currency appreciation and preserve export competi-
tiveness. Both Brazil and Peru enhanced capital account regulations, while some countries
experimented with indirect measures such as stockpiling international reserves and pre-
paying external debt. Brazil has been particularly active in trying to stabilize the value of
its currency. Amidst concerns of overvaluation and deindustrialization, the Government
intervened to lower the exchange rate in September, and soon after, a free fall of the real
forced it to change course and support the rate. As capital movements remained very
volatile, Brazil introduced mild forms of capital-account regulation aimed not only at
stabilizing the currency but also at gaining better control over monetary policy.


In the outlook for 2012, South American economies are expected to continue
the deceleration that set in during 2011, reaching a modest 3.6 per cent GDP growth in
the baseline forecast. The economies of the Caribbean, Central America and Mexico are
expected to slow down as well, with growth projected to average 3 per cent in 2012.


Risks to the outlook are mainly on the downside. Economic growth prospects
in the Caribbean, Central America and Mexico will darken considerably with a possible
downturn in Europe and the United States. This could then trigger a downward spiral of
lower tax revenues, difficulties in servicing public debts, greater fiscal austerity and even
lower demand growth. A slowdown of the Chinese economy, a major buyer of the region’s
commodities and major investor in South America, may weaken demand for manufactur-
ing exports and soften commodity prices, further affecting the South American economies.
A deepening of the sovereign debt crises in Europe and fears of dollar funding drying up
could spill over through rising spreads on emerging market bonds and make public and
private financing more expensive or unavailable for some countries in the region. Finally,
if such financial spillover effects lead to tighter domestic credit supplies, investment and
consumer demand growth would be held back further. Some financial institutions, includ-
ing the IMF and some central banks, optimistically see possible upside risks in the event
that sovereign debt crises in the developed countries unwind more quickly than expected,
allowing for stronger rebounds in demand and FDI.


Financial markets have
been volatile, but the


banking sector remains
stronger than in


other regions


External volatility has
prompted various countries


to intervene in foreign-
exchange markets


Growth is forecast to slow
moderately across


the region




Statistical annex






131


Country classification
Data sources, country classifications
and aggregation methodology


The statistical annex contains a set of data that the World Economic Situation and Prospects
(WESP) employs to delineate trends in various dimensions of the world economy.


Data sources


The annex was prepared by the Development Policy and Analysis Division (DPAD) of
the Department of Economic and Social Affairs of the United Nations Secretariat (UN/
DESA). It is based on information obtained from the Statistics Division and the Population
Division of UN/DESA, as well as from the five United Nations regional commissions, the
United Nations Conference on Trade and Development (UNCTAD), the United Nations
World Tourism Organization (UNWTO), the International Monetary Fund (IMF), the
World Bank, the Organization for Economic Cooperation and Development (OECD),
and national and private sources. Estimates for the most recent years were made by DPAD
in consultation with the regional commissions, UNCTAD, UNWTO and participants
in Project LINK, an international collaborative research group for econometric modelling
coordinated jointly by DPAD and the University of Toronto. Forecasts for 2012 and 2013
are primarily based on the World Economic Forecasting Model of DPAD, with support
from Project LINK.


Data presented in WESP may differ from those published by other organi-
zations for a series of reasons, including differences in timing, sample composition and
aggregation methods. Historical data may differ from those in previous editions of WESP
because of updating and changes in the availability of data for individual countries.


Country classifications


For analytical purposes, WESP classifies all countries of the world into one of three broad
categories: developed economies, economies in transition and developing countries. The
composition of these groupings, specified in tables A, B and C, is intended to reflect
basic economic country conditions. Several countries (in particular the economies in
transition) have characteristics that could place them in more than one category; however,
for purposes of analysis, the groupings have been made mutually exclusive. Within each
broad category, some subgroups are defined based either on geographical location or on
ad hoc criteria, such as the subgroup of “major developed economies”, which is based on
the membership of the Group of Seven. Geographical regions for developing countries
are as follows: Africa, East Asia, South Asia, Western Asia, and Latin America and the
Caribbean.a


In parts of the analysis, a distinction is made between fuel exporters and fuel
importers from among the economies in transition and the developing countries. An


a Names and composition of geographical areas follow those specified in the statistical paper
entitled “Standard country or area codes for statistical use” (ST/ESA/STAT/SER.M/49/Rev. 4).




132 World Economic Situation and Prospects 2012


economy is classified as a fuel exporter if the share of fuel exports in its total merchandise
exports is greater than 20 per cent and the level of fuel exports is at least 20 per cent higher
than that of the country’s fuel imports. This criterion is drawn from the share of fuel
exports in the total value of world merchandise trade. Fuels include coal, oil and natural
gas (table D).


For other parts of the analysis, countries have been classified by their level of
development as measured by per capita gross national income (GNI). Accordingly, coun-
tries have been grouped as high-income, upper middle income, lower middle income and
low-income (table E). To maintain compatibility with similar classifications used elsewhere,
the threshold levels of GNI per capita are those established by the World Bank. Countries
with less than $1005 GNI per capita are classified as low-income countries, those with
between $1,006 and $3,975 as lower middle income countries, those with between $3,976
and $12,275 as upper middle income countries, and those with incomes of more than
$12,276 as high-income countries. GNI per capita in dollar terms is estimated using the
World Bank Atlas method,b and the classification in table E is based on data for 2010.


The list of the least developed countries (LDCs) is decided upon by the United
Nations Economic and Social Council and, ultimately, by the General Assembly, on the basis
of recommendations made by the Committee for Development Policy. The basic criteria for
inclusion require that certain thresholds be met with regard to per capita GNI, a human assets
index and an economic vulnerability index.c As at 25 November 2011, there were 48 LDCs
(table F).


WESP also makes reference to the group of heavily indebted poor countries
(HIPCs), which are considered by the World Bank and IMF as part of their debt-relief
initiative (the Enhanced HIPC Initiative).d In November 2011, there were 40 HIPCs
(table G).


South Sudan became independent on 9 July 2011 and became a Member State
of the United Nations on 14 July 2011. Information on South Sudan is not included in this
year’s WESP owing to lack of statistical data.


Aggregation methodology


Aggregate data are either sums or weighted averages of individual country data. Unless
otherwise indicated, multi-year averages of growth rates are expressed as compound an-
nual percentage rates of change. The convention followed is to omit the base year in a
multi-year growth rate. For example, the 10-year average growth rate for the decade of the
2000s would be identified as the average annual growth rate for the period from 2001 to
2010.


WESP utilizes exchange-rate conversions of national data in order to aggregate
output of individual countries into regional and global totals. The growth of output in
each group of countries is calculated from the sum of gross domestic product (GDP) of
individual countries measured at 2005 prices and exchange rates. Data for GDP in 2005
in national currencies were converted into dollars (with selected adjustments) and extended


b See http://data.worldbank.org/about/country-classifications.


c Handbook on the Least Developed Country Category: Inclusion, Graduation and Special Support
Measures (United Nations publication, Sales No. E.07.II.A.9). Available from http://www.un.org/en/
development/desa/policy/cdp/cdp_ldcs_handbook.shtml.


d International Development Association (IDA) and IMF, “Heavily Indebted Poor Countries (HIPC)
Initiative and Multilateral Debt Relief Initiative (MDRI): Status of implementation”, 14 September
2010. Available from http://www.imf.org/external/np/pp/eng/2010/091410.pdf.




133Country classification


forwards and backwards in time using changes in real GDP for each country. This method
supplies a reasonable set of aggregate growth rates for a period of about 15 years, centred
on 2005.


The exchange-rate based method differs from the one mainly applied by the
IMF and the World Bank for their estimates of world and regional economic growth, which
is based on purchasing power parity (PPP) weights. Over the past two decades, the growth
of world gross product (WGP) on the basis of the exchange-rate based approach has been
below that based on PPP weights. This is because developing countries, in the aggregate,
have seen significantly higher economic growth than the rest of the world in the 1990s and
2000s and the share in WGP of these countries is larger under PPP measurements than
under market exchange rates.


Table A
Developed economies


Europe


Other countries Major developed economies (G7)European Union Other Europe


EU-15


Austria
Belgium
Denmark
Finland
France
Germany
Greece
Ireland
Italy
Luxembourg
Netherlands
Portugal
Spain
Sweden
United Kingdom


Iceland
Norway
Switzerland


Australia
Canada
Japan
New Zealand
United States


Canada
Japan
France
Germany
Italy
United Kingdom
United States


New EU member States
Bulgaria
Cyprus
Czech Republic
Estonia
Hungary
Latvia
Lithuania
Malta
Poland
Romania
Slovakia
Slovenia




134 World Economic Situation and Prospects 2012


Table B
Economies in transition


South-Eastern Europe
Commonwealth of Independent
States and Georgiaa


Albania
Bosnia and Herzegovina
Croatia
Montenegro
Serbia
The former Yugoslav Republic of Macedonia


Armenia
Azerbaijan
Belarus
Georgiaa
Kazakhstan
Kyrgyzstan
Republic of Moldova
Russian Federation
Tajikistan
Turkmenistan
Ukraine
Uzbekistan


a Georgia officially left the Commonwealth of Independent States on 18 August 2009. However, its performance
is discussed in the context of this group of countries for reasons of geographic proximity and similarities in
economic structure.




135Country classification


Table C
Developing economies by regiona


Africa Asia Latin America and the Caribbean


North Africa
Algeria
Egypt
Libyab
Morocco
Tunisia


Sub-Saharan Africa
Central Africa


Cameroon
Central African Republic
Chad
Congo
Equatorial Guinea
Gabon
Sao Tome and Prinicipe


East Africa
Burundi
Comoros
Democratic Republic of the Congo
Djibouti
Eritrea
Ethiopia
Kenya
Madagascar
Rwanda
Somalia
Sudan
Uganda
United Republic of Tanzania


Southern Africa
Angola
Botswana
Lesotho
Malawi
Mauritius
Mozambique
Namibia
South Africa
Zambia
Zimbabwe


West Africa
Benin
Burkina Faso
Cape Verde
Côte d’Ivoire
Gambia
Ghana
Guinea
Guinea-Bissau
Liberia
Mali
Mauritania
Niger
Nigeria
Senegal
Sierra Leone
Togo


East Asia
Brunei Darussalam
China
Hong Kong SARc
Indonesia
Malaysia
Myanmar
Papua New Guinea
Philippines
Republic of Korea
Singapore
Taiwan Province of China
Thailand
Viet Nam


South Asia
Bangladesh
India
Iran (Islamic Republic of )
Nepal
Pakistan
Sri Lanka


Western Asia
Bahrain
Iraq
Israel
Jordan
Kuwait
Lebanon
Oman
Qatar
Saudi Arabia
Syrian Arab Repuplic
Turkey
United Arab Emirates
Yemen


Caribbean
Barbados
Cuba
Dominican Republic
Guyana
Haiti
Jamaica
Trinidad and Tobago


Mexico and Central America
Costa Rica
El Salvador
Guatemala
Honduras
Mexico
Nicaragua
Panama


South America
Argentina
Bolivia (Plurinational State of )
Brazil
Chile
Colombia
Ecuador
Paraguay
Peru
Uruguay
Venezuela (Bolivarian Republic of )


a Economies systematically monitored by the Global Economic Monitoring Unit of DPAD.
b The name of the Libyan Arab Jamahiriya was officially changed to Libya on 16 September 2011.
c Special Administrative Region of China.




136 World Economic Situation and Prospects 2012


Table D
Fuel-exporting countries


Economies in
transition


Developing countries


Latin America and the
Caribbean Africa East Asia South Asia Western Asia


Azerbaijan
Kazakhstan
Russian Federation
Turkmenistan
Uzbekistan


Bolivia
(Plurinational State of )
Colombia
Ecuador
Trinidad and Tobago
Venezuela
(Bolivarian Republic of )


Algeria
Angola
Cameroon
Chad
Congo
Côte d’Ivoire
Egypt
Equatorial Guinea
Gabon
Libyaa
Nigeria
Sudan


Brunei Darussalam
Indonesia
Viet Nam


Iran (Islamic
Republic of )


Bahrain
Iraq
Kuwait
Oman
Qatar
Saudi Arabia
United Arab
Emirates
Yemen


a The name of the Libyan Arab Jamahiriya was officially changed to Libya on 16 September 2011.




137Country classification


Table E
Economies by per capita GNI in 2011a


High-income Upper middle income Lower middle income Low-income


Australia
Austria
Bahrain
Barbados
Belgium
Brunei Darussalam
Canada
Croatia
Cyprus
Czech Republic
Denmark
Equatorial Guinea
Estonia
Finland
France
Germany
Greece
Hong Kong SARb
Hungary
Iceland
Ireland
Israel
Italy
Japan
Kuwait
Montenegro
Luxembourg
Malta
Netherlands
New Zealand
Norway
Oman
Poland
Portugal
Qatar
Republic of Korea
Saudi Arabia
Singapore
Slovakia
Slovenia
Spain
Sweden
Switzerland
Taiwan Province of China
Trinidad and Tobago
United Arab Emirates
United Kingdom
United States


Albania
Algeria
Argentina
Azerbaijan
Belarus
Bosnia and Herzegovina
Botswana
Brazil
Bulgaria
Chile
Chinac
Colombia
Costa Rica
Cuba
Dominican Republic
Ecuadorc
Gabon
Iran (Islamic Republic of )
Jamaica
Jordanc
Kazakhstan
Latviad
Lebanon
Libyae
Lithuania
Malaysia
Mauritius
Mexico
Papua New Guinea
Namibia
Panama
Peru
Romania
Russian Federation
Serbia
South Africa
Thailandc
The former Yugoslav
Republic of Macedonia
Tunisiac
Turkey
Uruguay
Venezuela
(Bolivarian Republic of )


Angola
Armenia
Bolivia (Plurinational
State of )
Cameroon
Cape Verde
Congo
Côte d’Ivoire
Djibouti
Egypt
El Salvador
Georgia
Ghanac
Guatemala
Guyana
Honduras
India
Indonesia
Iraq
Lesotho
Mauritaniac
Morocco
Nicaragua
Nigeria
Pakistan
Paraguay
Philippines
Republic of Moldova
Sao Tome and Prinicipe
Senegal
Sri Lanka
Sudan
Syrian Arab Repuplic
Turkmenistan
Ukraine
Uzbekistan
Viet Nam
Yemen
Zambiac


Bangladesh
Benin
Burkina Faso
Burundi
Central African Republic
Chad
Comoros
Democratic Republic
of the Congo
Eritrea
Ethiopia
Gambia
Guinea
Guinea-Bissau
Haiti
Kenya
Kyrgyzstan
Liberia
Madagascar
Malawi
Mali
Mozambique
Myanmar
Nepal
Niger
Rwanda
Sierra Leone
Somalia
Tajikistan
Togo
Uganda
United Republic of
Tanzania
Zimbabwe


a Economies systematically monitored for the World Economic Situation and Prospects report and included in the
United Nations’ global economic forecast.


b Special Administrative Region of China.
c Indicates the country has been shifted upward by one category from previous year’s classification.
d Indicates the country has been shifted downward by one category from previous year’s classification.
e The name of the Libyan Arab Jamahiriya was officially changed to Libya on 16 September 2011.




138 World Economic Situation and Prospects 2012


Table F
Least developed countries


As of November 2011


Africa East Asia South Asia Western Asia
Latin America and
the Caribbean


Angola
Benin
Burkina Faso
Burundi
Central African Republic
Chad
Comoros
Democratic Republic of the Congo
Djibouti
Equatorial Guinea
Eritrea
Ethiopia
Gambia
Guinea
Guinea-Bissau
Lesotho
Liberia
Madagascar
Malawi
Mali
Mauritania
Mozambique
Niger
Rwanda
Sao Tome and Principe
Senegal
Sierra Leone
Somalia
Sudan
Togo
Uganda
United Republic of Tanzania
Zambia


Cambodiaa
Kiribatia
Lao People’s
Democratic Republica
Myanmar
Samoaa,b
Solomon Islandsa
Timor Lestea
Tuvalua
Vanuatua


Afghanistana
Bangladesh
Bhutana
Nepal


Yemen Haiti


a Not included in the WESP discussion because of insufficient data.
b Samoa will graduate from the list of the least developed countries in January 2014.




139Country classification


Table G
Heavily indebted poor countries


As of November 2011


Post-completion point HIPCsa Interim HIPCsb Pre-decision point HIPCsc


Afghanistan
Benin
Bolivia
Burkina Faso
Burundi
Cameroon
Central African Republic
Congo
Democratic Republic of the Congo
Ethiopia
Ghana
Guyana
Gambia
Haiti
Honduras
Liberia
Madagascar
Malawi
Mali
Mauritania
Mozambique
Nicaragua
Niger
Rwanda
Sao Tome and Principe
Senegal
Sierra Leone
Uganda
United Republic of Tanzania
Zambia


Chad
Comoros
Côte d’Ivoire
Guinea
Guinea-Bissau
Togo


Eritrea
Kyrgyzstand
Somalia
Sudan


a Countries that have qualified for irrevocable debt relief under the HIPC Initiative.
b Countries that have qualified for assistance under the HIPC Initiative (that is to say, have reached decision


point), but have not yet reached completion point.
c Countries that are potentially eligible and may wish to avail themselves of the HIPC Initiative or the Multilateral


Debt Relief Initiative (MDRI).
d The Kyrgyz authorities indicated in early 2007 that they did not wish to avail themselves of debt relief under the


HIPC Initiative, but subsequently expressed interest in the MDRI. Based on the latest available data, however,
indebtedness indicators were estimated to be below the applicable HIPC Initiative thresholds, while income
levels were estimated to be above the MDRI thresholds.




140 World Economic Situation and Prospects 2012


Table H
Small island developing States


American Samoa
Anguilla
Antigua and Barbuda
Aruba
Bahamas
Barbados
Belize
British Virgin Islands
Cape Verde
Commonwealth of Northern Marianas
Comoros
Cook Islands
Cuba
Dominica
Dominican Republic
Fiji
French Polynesia
Grenada
Guam
Guinea-Bissau
Guyana
Haiti
Jamaica
Kiribati
Maldives
Marshall Islands


Mauritius
Micronesia (Federated States of )
Montserrat
Nauru
Netherlands Antilles
New Caledonia
Niue
Palau
Papua New Guinea
Puerto Rico
Samoa
Sao Tome and Principe
Seychelles
Singapore
Solomon Islands
St. Kitts and Nevis
St. Lucia
St. Vincent and the Grenadines
Suriname
Timor-Leste
Tonga
Trinidad and Tobago
Tuvalu
U.S. Virgin Islands
Vanuatu


Table I
Landlocked developing countries


Afghanistan
Armenia
Azerbaijan
Bhutan
Bolivia (Plurinational State of )
Botswana
Burkina Faso
Burundi
Central African Republic
Chad
Ethiopia
Kazakhstan
Kyrgystan
Lao People’s Democratic Republic
Lesotho
Malawi


Mali
Republic of Moldova
Mongolia
Nepal
Niger
Paraguay
Rwanda
Swaziland
Tajikistan
The former Yugoslav Republic of Macedonia
Turkmenistan
Uganda
Uzbekistan
Zambia
Zimbabwe




Annex tables




List of tables


A. 1 Developed economies: rates of growth of real GDP, 2003-2013 ...................................................................................... 143
A. 2 Economies in transition: rates of growth of real GDP, 2003-2013 .................................................................................... 144
A. 3 Developing economies: rates of growth of real GDP, 2003-2013 .................................................................................... 145
A. 4 Developed economies: consumer price inflation, 2003-2013........................................................................................... 147
A. 5 Economies in transition: consumer price inflation, 2003-2013 ......................................................................................... 148
A. 6 Developing economies: consumer price inflation, 2003-2013 ......................................................................................... 149
A. 7 Developed economies: unemployment rates, 2003-2013 .................................................................................................. 151
A. 8 Economies in transition and developing economies: unemployment rates, 2002-2011 ................................ 153
A. 9 Major developed economies: quarterly indicators of growth,
unemployment and inflation, 2009-2011 .................................................................................................................................... 155
A.10 Selected economies in transition: quarterly indicators of growth and inflation, 2009-2011 ......................... 156
A.11 Major developing economies: quarterly indicators of growth,
unemployment and inflation, 2009-2011 .................................................................................................................................... 157
A.12 Major developed economies: financial indicators, 2002-2011 .......................................................................................... 159
A.13 Selected economies: real effective exchange rates, broad measurement, 2002-2011 ...................................... 160
A.14 Indices of prices of primary commodities, 2002-2011 ........................................................................................................... 162
A.15 World oil supply and demand, 2003-2012 ..................................................................................................................................... 163
A.16 World trade: changes in value and volume of exports and imports,
by major country group, 2003-2013 ............................................................................................................................................... 164
A.17 Balance of payments on current accounts,
by country or country group, summary table, 2002-2010 ................................................................................................... 166
A.18 Balance of payments on current accounts, by country or country group, 2002-2010 ...................................... 167
A.19 Net ODA from major sources, by type, 1990-2010 ................................................................................................................... 170
A.20 Total net ODA flows from OECD Development Assistance Committee
countries, by type, 2001-2010 ............................................................................................................................................................. 171
A.21 Commitments and net flows of financial resources,
by selected multilateral institutions, 2001-2010 ...................................................................................................................... 172
A.22 Greenhouse gas emissions of Annex 1 Parties to the United Nations
Framework Convention on Climate Change, 1990-2013 ..................................................................................................... 173




143Annex tables


Table A.1
Developed economies: rates of growth of real GDP, 2003-2013
Annual percentage change


"2003-
2010a" 2003 2004 2005 2006 2007 2008 2009 2010 2011b 2012c 2013c


Developed economies 1.3 1.9 3.0 2.4 2.9 2.6 -0.1 -4.0 2.7 1.3 1.3 1.9
United States 1.4 2.6 3.5 3.1 2.7 1.9 -0.4 -3.5 3.0 1.7 1.5 2.0
Canada 1.7 1.9 3.1 3.0 2.8 2.2 0.7 -2.8 3.2 2.1 1.7 2.3
Japan 0.7 1.4 2.7 1.9 2.0 2.4 -1.2 -6.3 4.0 -0.5 2.0 2.0
Australia 2.8 4.2 3.0 3.1 3.6 3.8 1.4 2.3 2.5 0.5 2.8 2.6
New Zealand 2.0 3.9 3.6 3.2 2.2 2.9 -1.1 0.8 2.3 1.4 2.5 3.0


European Union 1.2 1.4 2.5 1.9 3.3 3.2 0.3 -4.3 2.0 1.6 0.7 1.7
EU-15 1.1 1.2 2.4 1.8 3.1 3.0 0.0 -4.3 1.9 1.5 0.5 1.6


Austria 1.7 0.9 2.6 2.4 3.7 3.7 1.4 -3.8 2.3 3.0 1.3 2.2
Belgium 1.6 0.8 3.3 1.7 2.7 2.9 1.0 -2.8 2.3 2.0 1.1 1.6
Denmark 0.7 0.4 2.3 2.4 3.4 1.6 -1.1 -5.2 1.7 0.8 0.2 1.2
Finland 1.8 2.0 4.1 2.9 4.4 5.4 1.0 -8.2 3.6 3.8 2.6 2.4
France 1.1 0.9 2.5 1.8 2.5 2.3 -0.1 -2.7 1.5 1.6 0.3 1.4
Germany 1.2 -0.4 1.2 0.7 3.7 3.3 1.1 -5.1 3.7 2.9 1.0 1.4
Greece 1.1 5.9 4.4 2.3 5.5 3.0 -0.2 -3.3 -3.5 -7.5 -5.7 0.0
Ireland 1.3 4.2 4.5 5.3 5.3 5.2 -3.0 -7.0 -0.4 1.5 0.0 0.8
Italy 0.0 0.0 1.5 0.7 2.0 1.5 -1.3 -5.2 1.3 0.6 -0.3 1.0
Luxembourg 2.7 1.5 4.4 5.4 5.0 6.6 0.8 -5.3 2.7 3.4 1.0 3.0
Netherlands 1.6 0.3 2.2 2.0 3.4 3.9 1.8 -3.5 1.7 1.5 1.0 1.2
Portugal 0.7 -0.9 1.6 0.8 1.4 2.4 0.0 -2.5 1.4 -1.7 -3.4 -1.5
Spain 1.6 3.1 3.3 3.6 4.0 3.6 0.9 -3.7 -0.1 0.7 0.3 1.1
Sweden 2.1 2.3 4.2 3.2 4.3 3.3 -0.6 -5.3 5.7 4.3 1.9 3.4
United Kingdom 1.0 3.5 3.0 2.1 2.6 3.5 -1.1 -4.4 1.8 0.9 1.1 2.6


New EU member States 3.6 4.3 5.6 4.8 6.5 6.0 4.1 -3.7 2.3 2.9 2.6 3.1
Bulgaria 3.7 5.5 6.7 6.4 6.5 6.4 6.2 -5.5 0.2 1.8 2.5 3.8
Cyprus 2.8 1.9 4.2 3.9 4.1 5.1 3.6 -1.9 1.1 0.5 0.5 1.0
Czech Republic 3.5 3.8 4.7 6.8 7.0 5.7 3.1 -4.7 2.7 2.1 2.0 2.7
Estonia 2.1 7.8 6.3 8.9 10.1 7.5 -3.7 -14.3 2.3 6.4 2.5 3.2
Hungary 1.1 3.9 4.8 4.0 3.9 0.1 0.9 -6.8 1.3 1.4 1.5 1.6
Latvia 2.1 7.6 8.9 10.1 11.2 9.6 -3.3 -17.7 -0.3 3.9 2.6 3.2
Lithuania 2.9 10.3 7.4 7.8 7.8 9.8 2.9 -14.8 1.4 5.6 2.7 3.6
Malta 2.0 0.1 -0.5 3.7 2.2 4.3 4.4 -2.7 2.7 2.2 1.3 2.5
Poland 4.6 3.9 5.3 3.6 6.2 6.8 5.1 1.6 3.9 4.0 3.6 3.8
Romania 3.5 5.2 8.5 4.2 7.9 6.3 7.3 -6.6 -1.9 1.5 2.1 3.0
Slovakia 5.0 4.8 5.1 6.7 8.3 10.5 5.9 -4.9 4.2 3.0 2.1 2.5
Slovenia 2.5 2.9 4.4 4.0 5.8 6.9 3.6 -8.0 1.4 2.0 2.0 2.2


Other Europe 1.9 0.4 3.2 2.7 3.1 3.4 1.3 -1.9 1.5 1.0 1.1 1.6
Iceland 2.2 2.4 7.8 7.2 4.7 6.0 1.3 -6.7 -4.0 1.2 1.1 2.0
Norway 1.5 1.0 3.9 2.7 2.3 3.1 0.3 -1.7 0.3 1.6 2.9 2.6
Switzerland 2.2 -0.2 2.5 2.6 3.6 3.6 2.1 -1.9 2.7 0.5 -0.3 0.8


Memorandum items
North America 1.5 2.5 3.5 3.1 2.7 1.9 -0.3 -3.4 3.0 1.7 1.5 2.0
Western Europe 1.3 1.4 2.6 2.0 3.3 3.2 0.3 -4.2 1.9 1.6 0.7 1.7
Asia and Oceania 1.1 1.8 2.8 2.1 2.2 2.6 -0.8 -4.9 3.7 -0.3 2.1 2.1
Major developed economies 1.2 1.8 2.9 2.3 2.6 2.3 -0.4 -4.2 2.9 1.3 1.3 1.9
Euro area 1.1 0.8 2.2 1.7 3.2 3.0 0.4 -4.3 1.9 1.5 0.4 1.3


Source: UN/DESA, based on data of the United Nations Statistics Division and individual national sources.
Note: Country groups are calculated as a weighted average of individual country growth rates of gross domestic product (GDP), where weights are
based on GDP in 2005 prices and exchange rates.


a Average percentage change.
b Partly estimated.
c Baseline scenario forecasts, based in part on Project LINK and the UN/DESA World Economic Forecasting Model.




144 World Economic Situation and Prospects 2012


Table A.2
Economies in transition: rates of growth of real GDP, 2003-2013


Annual percentage change


2003-
2010a 2003 2004 2005 2006 2007 2008 2009 2010 2011b 2012c 2013c


Economies in transition 4.7 7.3 7.7 6.5 8.4 8.6 5.1 -6.6 4.1 4.1 3.9 4.1


South-Eastern Europe 3.2 4.3 5.6 4.7 5.2 6.0 4.2 -3.7 0.6 1.7 2.3 3.2


Albania 5.3 5.7 5.7 5.8 5.4 5.9 7.7 3.3 3.5 3.0 3.0 3.9
Bosnia and Herzegovina 3.7 3.9 6.3 3.9 6.0 6.2 5.7 -2.9 0.8 2.1 2.0 2.3
Croatia 1.8 5.4 4.1 4.3 4.9 5.1 2.2 -6.0 -1.2 0.8 2.0 3.0
Montenegro 4.4 2.5 4.4 4.2 8.6 10.7 6.9 -5.7 2.5 2.3 2.5 3.8
Serbia 4.3 2.4 8.3 5.6 5.2 6.9 5.5 -3.1 1.8 2.2 2.5 3.6
The former Yugoslav
Republic of Macedonia 3.7 2.8 4.6 4.4 5.0 6.1 5.0 -0.9 1.8 3.0 3.0 3.4


Commonwealth of Independent
States and Georgiad 4.9 7.6 7.9 6.7 8.7 8.8 5.2 -6.9 4.5 4.3 4.0 4.2


Net fuel exporters 4.9 7.4 7.4 6.9 8.8 8.9 5.3 -6.4 4.4 4.2 4.1 4.2
Azerbaijan 16.9 11.2 10.2 26.4 34.5 25.1 10.8 9.3 5.0 0.9 4.0 3.9
Kazakhstan 7.1 9.3 9.6 9.7 10.6 8.7 3.3 1.2 7.0 6.5 5.8 5.9
Russian Federation 4.4 7.3 7.2 6.4 8.2 8.5 5.2 -7.8 4.0 4.0 3.9 4.0
Turkmenistan 10.0 3.3 5.0 13.0 11.0 11.1 14.7 6.1 9.2 9.7 7.0 7.0
Uzbekistan 8.2 4.4 7.7 7.0 7.3 9.5 9.0 8.1 8.5 7.3 7.0 7.0


Net fuel importers 4.5 9.1 11.4 4.9 8.1 8.4 4.6 -9.8 5.1 4.7 3.2 4.2
Armenia 6.2 14.0 10.5 13.9 13.2 13.7 6.9 -14.1 2.1 4.3 4.1 4.4
Belarus 8.1 7.0 11.4 9.4 10.0 8.6 10.2 0.2 7.6 4.8 1.0 3.5
Georgiad 5.9 11.1 5.9 9.6 9.4 12.3 2.3 -3.8 6.4 5.5 5.0 4.7
Kyrgyzstan 4.0 7.0 7.0 -0.2 3.1 8.5 8.4 2.9 -1.4 6.0 5.4 5.0
Republic of Moldova 4.4 6.6 7.4 7.5 4.8 3.0 7.8 -6.0 6.9 5.5 3.9 4.3
Tajikistan 7.1 11.1 10.3 6.7 6.6 7.8 7.6 4.0 6.5 6.0 5.7 6.0
Ukraine 2.8 9.6 12.1 2.7 7.3 7.9 2.3 -14.8 4.2 4.4 3.8 4.3


Source: UN/DESA, based on data of the United Nations Statistics Division and individual national sources.
Note: Country groups are calculated as a weighted average of individual country growth rates of gross domestic product (GDP), where weights are
based on GDP in 2005 prices and exchange rates.


a Average percentage change.
b Partly estimated.
c Baseline scenario forecasts, based in part on Project LINK and the UN/DESA World Economic Forecasting Model.
d Georgia officially left the Commonwealth of Independent States on 18 August 2009. However, its performance is discussed in the context of this


group of countries for reasons of geographic proximity and similarities in economic structure.




145Annex tables


Table A.3
Developing economies: rates of growth of real GDP, 2003-2013


Annual percentage change


2003-
2010a 2003 2004 2005 2006 2007 2008 2009 2010 2011b 2012c 2013c


Developing countriesd 6.4 5.2 7.4 6.8 7.6 7.9 5.3 2.4 7.5 6.0 5.6 5.9


Africa 4.9 5.1 8.0 5.3 6.0 5.8 4.6 0.8 3.9 2.7 5.0 5.1
North Africa 4.5 6.3 4.7 5.1 5.4 4.7 4.6 3.2 4.0 -0.5 4.7 5.5
Sub-Saharan Africa (excluding
Nigeria and South Africa) 5.2 4.7 6.5 5.4 6.4 6.6 5.3 1.7 4.8 4.6 5.3 5.0
Net fuel exporters 5.4 6.5 11.3 5.6 6.0 6.2 4.7 0.4 3.8 1.4 5.6 5.9
Net fuel importers 4.5 3.9 5.2 5.2 6.0 5.5 4.7 1.1 4.0 3.9 4.5 4.5


East and South Asia 7.9 7.0 7.8 8.1 9.0 9.9 6.2 5.2 8.8 7.1 6.8 6.9
East Asia 8.0 6.8 7.9 8.1 9.2 10.2 6.4 5.1 9.2 7.2 6.9 6.9
South Asia 7.4 7.7 7.5 8.2 8.5 8.8 5.8 5.5 7.2 6.5 6.7 6.9
Net fuel exporters 5.0 6.1 5.2 5.7 6.0 7.7 3.5 2.9 4.4 5.0 5.1 5.2
Net fuel importers 8.1 7.1 8.1 8.3 9.4 10.2 6.5 5.4 9.2 7.3 7.0 7.1


Western Asia 5.0 5.5 8.3 6.7 6.5 4.6 3.8 -0.9 6.3 6.6 3.7 4.3
Net fuel exporters 5.2 7.0 8.5 6.1 6.7 4.1 5.8 0.7 4.9 7.3 4.4 3.9
Net fuel importers 4.8 4.2 8.2 7.3 6.3 5.0 2.0 -2.5 7.7 5.9 3.1 4.7


Latin America and the Caribbean 4.2 1.8 5.8 4.6 5.6 5.6 4.0 -2.1 6.0 4.3 3.3 4.2
South America 5.1 1.8 7.0 5.0 5.5 6.7 5.4 -0.4 6.4 4.6 3.6 4.5
Mexico and Central America 2.5 1.6 4.1 3.5 5.2 3.8 1.5 -5.7 5.6 3.8 2.7 3.6
Caribbean 5.2 3.4 3.8 8.2 10.3 6.5 3.6 0.9 3.5 3.4 3.6 4.3
Net fuel exporters 5.4 -0.5 10.6 7.1 8.1 7.0 4.2 -0.8 1.7 4.0 3.2 3.9
Net fuel importers 4.0 2.1 5.2 4.1 5.1 5.4 3.9 -2.4 6.8 4.4 3.3 4.2


Memorandum items


Least developed countries 7.1 5.1 7.7 7.6 7.5 8.4 7.5 5.2 5.6 4.9 6.0 5.7
Sub-Saharan Africa (excluding
Nigeria and South Africa) 6.0 3.9 6.6 6.4 6.4 7.6 6.5 3.6 5.1 4.8 5.8 5.3
East Asia (excluding China) 4.7 4.0 5.9 5.0 5.7 6.1 2.7 0.1 7.7 4.5 4.3 4.6
South Asia (excluding India) 4.7 6.4 6.0 6.2 6.2 7.0 2.2 2.2 3.2 3.7 4.1 4.3
Western Asia
(excluding Israel and Turkey) 5.3 6.5 8.3 6.0 6.4 4.3 5.8 1.2 5.0 6.5 4.3 3.8
Landlocked developing economies 7.1 5.7 7.7 8.2 9.1 8.7 6.3 3.1 6.7 5.5 5.6 5.6
Small island developing economies 5.7 4.0 6.0 7.2 8.6 7.5 2.9 0.2 8.1 4.0 3.6 4.2


Major developing economies


Argentina 7.4 8.8 9.0 9.2 8.5 8.7 6.8 0.9 9.2 7.6 7.2 7.2
Brazil 4.4 1.1 5.7 3.2 4.0 6.1 5.2 -0.6 7.5 3.7 2.7 3.8
Chile 4.0 3.9 6.0 5.6 4.6 4.6 3.7 -1.7 5.2 6.4 3.4 6.0
China 11.1 10.0 10.1 11.3 12.7 14.2 9.6 9.2 10.4 9.3 8.7 8.5
Colombia 4.7 3.9 5.3 4.7 6.7 6.9 3.5 1.5 4.3 4.4 4.0 3.8
Egypt 5.6 3.1 4.1 4.5 6.8 7.1 7.2 4.7 5.1 1.3 3.8 5.5
Hong Kong SARe 5.0 3.0 8.5 7.1 7.0 6.4 2.3 -2.7 7.0 4.9 4.1 4.5
India 8.6 8.4 8.3 9.3 9.6 9.7 7.5 7.0 9.0 7.6 7.7 7.9
Indonesia 5.6 4.8 5.0 5.7 5.5 7.4 4.9 4.6 6.1 6.5 6.3 6.4
Iran, Islamic Republic of 3.8 7.9 5.1 5.3 6.1 8.3 1.0 0.1 1.0 2.6 3.0 3.1
Israel 4.3 1.5 4.8 4.9 5.6 5.5 4.0 0.8 4.8 4.3 2.5 2.9




146 World Economic Situation and Prospects 2012


Table A.3 (cont’d)


2003-
2010a 2003 2004 2005 2006 2007 2008 2009 2010 2011b 2012c 2013c


Korea, Republic of 3.9 2.8 4.6 4.0 5.2 5.1 2.3 0.3 6.2 3.9 3.6 4.0
Malaysia 4.9 5.8 6.8 5.3 5.8 6.5 4.8 -1.6 7.2 4.6 4.4 5.0
Mexico 2.3 1.4 4.1 3.3 5.1 3.4 1.2 -6.3 5.8 3.8 2.5 3.6
Nigeria 6.0 10.4 33.7 3.4 7.5 5.1 2.3 -8.3 2.8 6.3 6.8 7.0
Pakistan 5.2 4.8 7.4 7.7 6.2 5.7 1.6 3.6 4.1 3.3 4.1 4.4
Peru 6.8 4.0 5.0 6.8 7.7 8.9 9.8 0.9 8.8 5.9 5.2 4.7
Philippines 5.2 5.0 6.7 4.8 5.2 6.6 4.2 1.1 7.6 4.3 4.4 4.9
Saudi Arabia 3.5 7.7 5.3 5.6 3.2 2.0 4.2 0.2 3.8 6.8 3.9 3.5
Singapore 6.9 4.6 9.2 7.4 8.7 8.8 1.5 -0.8 14.5 5.0 4.0 4.5
South Africa 3.7 2.9 4.6 5.3 5.6 5.6 3.6 -1.7 2.8 3.1 3.7 3.5
Taiwan Province of China 4.5 3.7 6.2 4.7 5.4 6.0 0.7 -1.9 10.9 4.4 3.9 4.3
Thailand 4.1 7.1 6.3 4.6 5.1 5.0 2.5 -2.3 7.8 2.3 4.1 4.2
Turkey 4.8 5.3 9.4 8.4 6.9 4.7 0.7 -4.8 9.0 7.5 3.2 5.4
Venezuela, Bolivarian Republic of 6.5 -7.8 18.3 10.3 9.9 8.8 4.2 -3.3 -1.4 3.5 2.0 3.9


Source: UN/DESA, based on data of the United Nations Statistics Division and individual national sources.
Note: Country groups are calculated as a weighted average of individual country growth rates of gross domestic product (GDP), where weights are based
on GDP in 2005 prices and exchange rates.


a Average percentage change.
b Partly estimated.
c Baseline scenario forecasts, based in part on Project LINK and the UN/DESA World Economic Forecasting Model.
d Covering countries that account for 98 per cent of the population of all developing countries.
e Special Administrative Region of China.




147Annex tables


Table A.4
Developed economies: consumer price inflation, 2003-2013


Annual percentage changea


2003 2004 2005 2006 2007 2008 2009 2010 2011b 2012c 2013c


Developed economies 1.9 2.0 2.3 2.3 2.2 3.3 0.1 1.4 2.6 1.8 1.7


United States 2.3 2.7 3.4 3.2 2.9 3.8 -0.3 1.6 3.0 2.1 1.9
Canada 2.8 1.9 2.2 2.0 2.1 2.4 0.3 1.8 2.9 2.0 1.8
Japan -0.2 0.0 -0.3 0.2 0.1 1.4 -1.4 -0.8 0.8 0.5 0.3
Australia 2.8 2.3 2.7 3.5 2.3 4.4 1.7 1.9 2.8 3.8 4.8
New Zealand 1.8 2.3 3.0 3.4 2.4 4.0 2.0 2.3 4.4 3.0 2.3


European Union 2.1 2.1 2.2 2.2 2.2 3.5 0.8 1.9 2.9 2.0 1.8


EU-15 2.0 1.9 2.1 2.2 2.1 3.3 0.7 1.9 2.9 1.9 1.7
Austria 1.3 2.0 2.1 1.7 2.2 3.2 0.4 1.7 3.2 2.1 1.8
Belgium 1.5 1.9 2.5 2.3 1.8 4.5 0.0 2.3 3.3 2.3 2.5
Denmark 2.0 0.9 1.7 1.8 1.7 3.6 1.1 2.2 2.8 2.1 2.2
Finland 1.3 0.1 0.8 1.3 1.6 3.9 1.6 1.7 3.4 2.1 2.1
France 2.2 2.3 1.9 1.9 1.6 3.2 0.1 1.7 2.2 1.7 1.8
Germany 1.0 1.8 1.9 1.8 2.3 2.8 0.2 1.1 2.3 1.8 1.7
Greece 3.4 3.0 3.5 3.3 3.0 4.2 1.4 4.7 2.9 1.3 0.7
Ireland 4.0 2.3 2.2 2.7 2.9 3.1 -1.7 -1.6 1.2 1.3 1.0
Italy 2.8 2.3 2.2 2.2 2.0 3.5 0.8 1.6 2.7 1.7 1.6
Luxembourg 2.5 3.2 2.5 2.7 2.3 3.4 0.4 2.3 3.4 2.6 2.0
Netherlands 2.2 1.4 1.5 1.7 1.6 2.2 1.0 0.9 2.3 2.0 1.6
Portugal 3.3 2.5 2.1 3.0 2.4 2.7 -0.9 1.4 3.2 1.0 1.2
Spain 3.1 3.1 3.4 3.6 2.8 4.1 -0.2 2.0 3.1 1.8 1.9
Sweden 2.3 1.0 0.8 1.5 1.7 3.4 1.9 1.9 1.4 1.1 2.1
United Kingdom 1.4 1.3 2.1 2.3 2.3 3.6 2.2 3.3 4.6 2.5 1.7


New EU member States 3.7 5.1 3.4 3.2 4.1 6.1 3.2 2.9 3.8 3.3 2.9
Bulgaria 2.2 6.3 5.0 7.3 8.4 12.3 2.8 3.0 4.0 4.0 2.5
Cyprus 4.1 2.3 2.6 2.5 2.3 4.7 0.4 2.4 3.5 2.9 2.7
Czech Republic 0.1 2.8 1.9 2.5 3.0 6.3 1.0 1.5 1.9 2.6 2.3
Estonia 1.3 3.0 4.1 4.4 6.6 10.4 -0.1 3.0 5.0 3.5 3.0
Hungary 4.6 6.8 3.5 3.9 8.0 6.1 4.2 4.7 3.8 5.0 3.5
Latvia 3.0 6.2 6.7 6.5 10.1 15.4 3.6 -1.2 4.5 3.0 2.5
Lithuania -1.1 1.1 2.7 3.7 5.8 10.9 4.4 1.3 4.5 3.0 2.5
Malta 1.3 2.8 3.0 2.8 1.3 4.3 2.1 1.5 2.8 2.3 2.7
Poland 0.8 3.6 2.2 1.3 2.4 4.2 3.8 2.7 3.9 2.9 3.0
Romania 15.3 11.9 8.9 6.6 4.8 7.9 5.6 6.1 6.0 4.3 3.6
Slovakia 8.6 7.5 2.7 4.5 2.8 4.6 1.6 0.7 4.0 2.4 2.6
Slovenia 5.6 3.6 2.5 2.5 3.6 5.7 0.9 1.8 2.4 2.8 2.5


Other Europe 1.2 0.8 1.4 1.8 0.8 3.1 1.0 1.5 0.9 0.2 0.8


Iceland 2.1 3.2 4.0 6.7 5.1 12.7 12.0 5.4 4.0 4.0 4.0
Norway 1.9 0.6 1.5 2.5 0.7 3.4 2.3 2.3 1.4 0.9 1.6
Switzerland 0.6 0.8 1.2 1.1 0.7 2.4 -0.5 0.7 0.3 -0.6 0.1


Memorandum items


Major developed economies 1.7 1.9 2.3 2.3 2.1 3.1 -0.1 1.3 2.6 1.8 1.6
Euro area 2.1 2.2 2.2 2.2 2.1 3.3 0.3 1.6 2.5 1.8 1.7


Source: UN/DESA, based on OECD, Main Economic Indicators; Eurostat; and individual national sources.


a Data for country groups are weighted averages, where weights for each year are based on 2005 GDP in United States dollars.
b Partly estimated.
c Baseline scenario forecasts, based in part on Project LINK and the UN/DESA World Economic Forecasting Model.




148 World Economic Situation and Prospects 2012


Table A.5
Economies in transition: consumer price inflation, 2003-2013


Annual percentage changea


2003 2004 2005 2006 2007 2008 2009 2010 2011b 2012c 2013c


Economies in transition 11.7 9.9 11.7 9.1 9.0 14.5 10.6 6.7 9.2 7.5 6.6


South-Eastern Europe 3.7 4.1 6.4 5.7 3.6 7.8 3.5 2.8 5.0 3.4 3.3
Albania 0.5 2.3 2.4 2.4 2.9 3.3 2.3 3.6 3.8 3.6 3.2
Bosnia and Herzegovina 0.5 0.3 3.6 6.1 1.5 7.4 -0.3 2.1 4.0 3.0 3.0
Croatia 1.8 2.0 3.3 3.2 2.9 6.0 2.4 1.1 2.3 2.7 2.8
Montenegro 6.7 2.1 2.7 3.0 4.3 9.0 3.8 0.5 3.5 3.0 3.0
Serbia 9.9 11.0 16.3 11.8 6.1 12.4 8.1 6.3 11.0 5.0 4.5
The former Yugoslav Republic
of Macedonia 1.1 0.9 -0.7 3.3 2.8 7.2 -0.3 1.6 4.2 3.0 3.0


Commonwealth of Independent
States and Georgiad 12.5 10.4 12.2 9.4 9.5 15.2 11.3 7.1 9.6 7.8 6.9


Net fuel exporters 12.8 10.4 12.2 9.5 9.2 14.2 11.0 6.9 8.7 7.1 6.7
Azerbaijan 2.2 6.7 9.5 8.2 16.6 20.8 1.4 5.6 8.0 6.0 6.0
Kazakhstan 6.4 6.9 7.5 8.6 10.8 17.1 7.3 7.1 8.5 8.5 6.0
Russian Federation 13.7 10.9 12.7 9.7 9.0 14.0 11.6 6.9 8.7 6.9 6.7
Turkmenistan 5.6 5.9 10.7 8.2 6.3 14.5 -2.7 4.5 6.5 8.0 8.0
Uzbekistan 3.8 3.7 7.8 6.8 6.8 7.8 7.4 7.3 11.0 10.0 10.0


Net fuel importers 10.6 10.8 11.8 8.4 11.3 21.2 13.4 8.7 15.7 12.9 8.2
Armenia 4.7 7.0 0.6 2.9 4.4 8.9 3.4 8.2 8.2 5.5 4.0
Belarus 28.4 18.1 10.4 7.0 8.2 14.9 12.9 7.7 38.0 30.0 10.0
Georgiad 4.8 5.7 8.2 9.2 9.2 9.9 1.8 7.1 6.0 6.0 7.0
Kyrgyzstan 3.0 4.1 4.4 5.6 10.1 24.5 6.9 8.0 19.5 9.5 8.0
Republic of Moldova 11.7 12.5 12.0 12.8 12.3 12.8 -0.1 7.4 7.8 5.0 6.0
Tajikistan 16.3 7.1 7.2 10.0 13.4 20.9 6.4 6.5 13.0 9.0 6.0
Ukraine 5.2 9.0 13.5 9.1 12.8 25.2 15.9 9.4 9.2 8.3 8.0


Source: UN/DESA, based on data of the Economic Commission for Europe.


a Data for country groups are weighted averages, where weights for each year are based on 2005 GDP in United States dollars.
b Partly estimated.
c Baseline scenario forecasts, based in part on Project LINK and the UN/DESA World Economic Forecasting Model.
d Georgia officially left the Commonwealth of Independent States on 18 August 2009. However, its performance is discussed in the context of this


group of countries for reasons of geographic proximity and similarities in economic structure.




149Annex tables


Table A.6
Developing economies: consumer price inflation, 2003-2013


Annual percentage changea


2003 2004 2005 2006 2007 2008 2009 2010 2011b 2012c 2013c


Developing countries by region 6.1 5.1 4.7 4.5 5.2 8.2 4.3 5.5 6.6 5.5 4.9


Africa 7.9 6.1 6.2 5.5 6.0 10.8 7.3 6.8 7.8 6.6 6.1
North Africa 2.2 4.6 2.6 4.1 5.2 9.2 5.9 6.7 7.1 5.7 5.3
Sub-Saharan Africa (excluding
Nigeria and South Africa) 13.8 8.4 9.3 8.1 7.1 13.1 7.4 6.5 10.0 7.2 6.6
Net fuel exporters 10.9 8.4 8.7 5.3 4.9 9.0 6.9 8.6 8.4 7.0 6.7
Net fuel importers 6.2 3.4 4.5 5.3 6.3 10.8 6.8 4.6 6.4 5.4 5.1


East and South Asia 2.7 4.1 3.7 3.7 4.9 7.5 2.9 5.0 6.2 5.0 4.4
East Asia 1.8 3.5 2.9 2.7 3.9 6.0 0.6 3.2 5.1 3.9 3.4
South Asia 5.9 6.2 6.5 7.1 8.5 12.7 11.2 11.6 10.3 9.1 8.0
Net fuel exporters 9.8 9.4 11.2 11.9 10.5 17.0 7.9 7.3 10.9 9.3 8.0
Net fuel importers 2.0 3.6 2.9 2.8 4.3 6.5 2.4 4.8 5.7 4.6 4.0


Western Asia 11.1 5.1 5.6 6.4 6.2 10.1 4.8 6.0 6.3 5.2 4.6
Net fuel exporters 0.8 1.1 2.1 3.2 5.3 10.4 3.9 4.3 5.2 4.3 3.8
Net fuel importers 18.8 8.1 8.2 8.8 6.8 9.8 5.4 7.2 7.1 5.8 5.2


Latin America and the Caribbean 10.6 6.9 6.2 5.1 5.3 7.8 6.1 6.1 7.1 6.2 5.6
South America 13.7 7.0 7.1 5.7 5.8 8.8 6.7 7.1 8.4 7.2 6.3
Mexico and Central America 4.6 4.9 4.4 3.9 4.2 5.7 5.1 4.1 4.5 4.4 4.3
Caribbean 18.4 29.8 7.4 8.2 7.2 13.0 4.3 8.2 10.3 7.4 5.8
Net fuel exporters 16.8 12.0 9.4 8.2 10.8 17.6 14.5 13.8 12.6 11.5 9.6
Net fuel importers 9.6 6.1 5.7 4.6 4.4 6.3 4.8 4.9 6.2 5.4 4.9


Memorandum items


Least developed countries 15.1 9.8 10.1 8.9 9.4 13.6 7.0 8.4 11.1 8.7 7.7
East Asia (excluding China) 2.5 3.2 3.9 3.9 3.1 6.1 1.8 3.0 4.5 3.6 3.2
South Asia (excluding India) 9.9 11.0 11.0 9.8 12.8 21.3 11.9 10.8 13.9 11.8 10.3
Western Asia
(excluding Israel and Turkey) 1.4 1.7 2.7 3.9 5.3 11.0 3.8 4.5 5.3 4.5 4.0


Major developing economies


Argentina 13.4 4.4 9.6 10.9 8.8 8.6 6.3 10.8 11.0 11.0 10.5
Brazil 14.7 6.6 6.8 4.2 3.6 5.7 4.9 5.0 7.3 5.6 4.6
Chile 2.8 1.1 3.1 3.4 4.4 8.7 0.4 1.4 3.2 3.0 4.0
China 1.2 3.9 1.8 1.5 4.7 5.9 -0.7 3.3 5.7 4.2 3.6
Colombia 7.1 5.9 5.0 4.3 5.5 7.0 4.2 2.3 3.5 3.5 4.2
Egypt 4.5 11.3 4.9 7.6 9.3 18.3 11.8 11.1 13.3 11.0 9.1
Hong Kong SARd -2.5 -0.4 0.9 2.1 2.0 4.3 0.6 2.3 5.2 3.8 3.3
India 3.8 3.8 4.2 5.8 6.4 8.4 10.9 12.0 8.5 7.7 6.9
Indonesia 6.6 6.2 10.5 13.1 6.5 10.2 4.4 5.1 5.4 5.0 4.8
Iran, Islamic Republic of 16.5 14.8 13.4 11.9 17.2 25.6 13.5 10.1 17.0 14.5 12.5
Israel 0.7 -0.4 1.3 2.1 0.5 4.6 3.3 2.7 3.6 1.2 2.1
Korea, Republic of 3.5 3.6 2.8 2.2 2.5 4.7 2.8 2.9 4.6 3.5 3.0
Malaysia 1.0 1.5 3.0 3.6 2.0 5.4 0.6 1.7 3.1 2.7 2.5
Mexico 4.5 4.7 4.0 3.6 4.0 5.1 5.3 4.2 4.3 4.3 4.3
Nigeria 14.0 15.0 17.9 8.2 5.4 11.6 11.5 13.5 10.8 10.1 10.1




150 World Economic Situation and Prospects 2012


Table A.6 (cont’d)


2003 2004 2005 2006 2007 2008 2009 2010 2011b 2012c 2013c


Pakistan 2.9 7.4 9.1 7.9 7.6 20.3 13.7 13.9 12.2 10.1 9.0
Peru 2.3 3.7 1.6 2.0 1.8 5.8 2.9 1.5 3.2 2.5 3.0
Philippines 3.5 6.0 7.6 6.2 2.8 9.3 3.2 3.8 4.7 4.2 4.0
Saudi Arabia 0.6 0.3 0.7 2.2 4.2 9.9 5.1 5.3 5.5 4.4 3.9
Singapore 0.5 1.7 0.4 1.0 2.1 6.5 0.6 2.8 5.1 3.0 2.3
South Africa 5.9 1.4 2.0 3.2 6.2 10.1 7.2 4.1 5.0 5.3 4.8
Taiwan Province of China -0.3 1.6 2.3 0.6 1.8 3.5 -0.9 1.0 1.5 1.4 1.4
Thailand 1.8 2.8 4.5 4.6 2.3 5.4 -0.9 3.3 3.9 3.5 3.3
Turkey 25.3 10.6 10.1 10.5 8.8 10.4 6.3 8.6 8.2 7.0 6.0
Venezuela, Bolivarian Republic of 31.1 21.7 16.0 13.7 18.7 31.4 28.6 29.1 25.0 22.5 17.5


Source: UN/DESA, based on IMF, International Financial Statistics.


a Data for country groups are weighted averages, where weights are based on GDP in 2005 prices and exchange rates.
b Partly estimated.
c Baseline scenario forecasts, based in part on Project LINK and the UN/DESA World Economic Forecasting Model.
d Special Administrative Region of China.




151Annex tables


Table A.7
Developed economies: unemployment rates, a, b 2003-2013


Percentage of labour force


2003 2004 2005 2006 2007 2008 2009 2010 2011c 2012d 2013d


Developed economies 7.4 7.2 6.9 6.3 5.8 6.1 8.4 8.8 8.6 8.5 8.3


United States 6.0 5.5 5.1 4.6 4.6 5.8 9.3 9.6 9.1 9.2 9.1
Canada 7.6 7.2 6.8 6.3 6.0 6.1 8.3 8.0 7.6 7.4 7.1
Japan 5.3 4.7 4.4 4.1 3.9 4.0 5.1 5.1 5.0 4.1 4.1
Australia 5.9 5.4 5.0 4.8 4.4 4.2 5.6 5.2 5.6 5.7 5.7
New Zealand 4.8 4.1 3.8 3.9 3.7 4.2 6.1 6.5 6.1 5.5 5.6


European Union 9.1 9.2 9.0 8.2 7.3 7.1 9.0 9.8 9.6 9.6 9.3


EU-15 8.1 8.3 8.3 7.8 7.2 7.2 9.1 9.6 9.5 9.6 9.4
Austria 4.3 4.9 5.2 4.7 4.4 3.8 4.8 4.4 4.1 4.3 4.2
Belgium 8.2 8.4 8.5 8.3 7.5 7.0 7.9 8.3 7.3 8.2 7.7
Denmark 5.4 5.5 4.8 3.9 3.8 3.4 6.1 7.4 7.5 7.3 7.1
Finland 9.1 8.9 8.3 7.7 6.9 6.4 8.2 8.4 7.9 7.4 7.0
France 9.0 9.2 9.3 9.2 8.4 7.8 9.5 9.8 9.8 9.9 9.6
Germany 9.8 10.5 11.2 10.1 8.8 7.6 7.7 7.1 6.2 6.0 6.0
Greece 9.7 10.5 9.9 8.9 8.3 7.7 9.5 12.6 14.8 17.4 17.6
Ireland 4.6 4.5 4.4 4.5 4.6 6.3 11.9 13.7 14.3 14.5 14.9
Italy 8.5 8.0 7.7 6.8 6.1 6.8 7.8 8.4 8.1 8.5 8.3
Luxembourg 3.8 5.0 4.6 4.6 4.2 4.9 5.1 4.6 4.7 5.0 4.8
Netherlands 4.1 5.1 5.3 4.3 3.6 3.1 3.7 4.5 4.2 4.2 4.0
Portugal 7.1 7.5 8.6 8.6 8.9 8.5 10.6 12.0 12.5 13.4 14.0
Spain 11.1 10.6 9.2 8.5 8.3 11.4 18.0 20.1 20.8 20.5 19.9
Sweden 6.6 7.4 7.7 7.1 6.1 6.2 8.3 8.4 7.5 7.5 7.3
United Kingdom 5.0 4.7 4.8 5.4 5.3 5.6 7.6 7.8 8.0 8.5 8.1


New EU member States 12.9 12.8 11.9 10.0 7.6 6.5 8.4 10.6 10.2 9.6 9.0
Bulgaria 13.7 12.1 10.1 9.0 6.9 5.6 6.8 10.2 11.8 11.4 10.8
Cyprus 4.1 4.6 5.3 4.6 3.9 3.7 5.3 6.2 7.2 7.3 7.0
Czech Republic 7.8 8.3 7.9 7.2 5.3 4.4 6.7 6.0 6.8 6.6 6.2
Estonia 10.0 9.7 7.9 5.9 4.7 5.5 13.8 16.9 12.6 10.9 9.1
Hungary 5.9 6.1 7.2 7.4 7.4 7.8 10.0 11.2 11.0 10.5 9.0
Latvia 10.5 10.4 8.9 6.8 6.0 7.5 17.1 18.7 16.0 15.0 13.8
Lithuania 12.5 11.4 8.3 5.6 4.3 5.8 13.7 17.8 15.4 13.6 11.5
Malta 7.7 7.2 7.3 6.9 6.5 6.0 6.9 6.9 7.0 6.6 6.7
Poland 19.7 19.0 17.8 13.9 9.6 7.1 8.2 12.1 11.3 10.1 9.8
Romania 6.8 8.0 7.2 7.3 6.4 5.8 6.9 7.3 7.3 7.0 6.5
Slovakia 17.6 18.2 16.2 13.4 11.1 9.5 12.0 14.4 13.4 13.8 13.6
Slovenia 6.7 6.3 6.5 6.0 4.9 4.4 5.9 7.3 8.0 8.0 7.5




152 World Economic Situation and Prospects 2012


Table A.7 (cont’d)


2003 2004 2005 2006 2007 2008 2009 2010 2011c 2012d 2013d


Other Europe 4.0 4.1 4.3 3.6 3.1 2.9 3.8 4.0 4.2 4.4 4.8


Icelande 3.4 3.1 2.6 2.9 2.3 3.0 7.2 8.1 7.5 7.6 7.5
Norway 4.2 4.3 4.5 3.4 2.5 2.5 3.1 3.5 3.4 3.4 3.3
Switzerland 3.9 4.1 4.2 3.8 3.4 3.2 4.1 4.2 4.6 4.9 5.6


Memorandum items


Major developed economies 6.7 6.4 6.3 5.8 5.5 5.9 8.1 8.3 8.1 8.2 8.2
Euro area 9.0 9.2 9.2 8.4 7.6 7.7 9.5 10.1 9.9 10.0 9.8


Source: UN/DESA, based on data of the OECD and Eurostat.


a Unemployment data are standardized by the OECD and Eurostat for comparability among countries and over time, in conformity with the
definitions of the International Labour Organization (see OECD, Standardized Unemployment Rates: Sources and Methods (Paris, 1985)).


b Data for country groups are weighted averages, where labour force is used for weights.
c Partly estimated.
d Baseline scenario forecasts, based in part on Project LINK and the UN/DESA World Economic Forecasting Model.
e Not standardized.




153Annex tables


Table A.8
Economies in transition and developing economies: unemployment rates,a 2002-2011


2002 2003 2004 2005 2006 2007 20078 2009 2010 2011b


South-Eastern Europe


Albaniac 15.8 15.0 14.4 14.1 13.8 13.4 13.0 13.8 13.5 13.3
Bosnia and Herzegovina .. .. .. .. 31.1 29.0 23.4 24.1 27.2 27.5
Croatia 15.1 13.9 13.7 12.6 11.1 9.6 8.4 9.1 12.3 14.2
Montenegro 36.5 33.4 31.1 27.3 22.3 18.0 16.8 19.1 19.7 20.0
Serbia 13.3 14.6 18.5 20.8 20.9 18.1 14.0 16.1 19.2 19.9
The former Yugoslav Republic of Macedonia 31.9 36.7 37.2 37.3 36.0 34.9 33.8 32.2 32.1 31.0


Commonwealth of Independent States and Georgiad


Armeniac 10.5 10.2 9.4 7.6 7.2 6.4 6.3 6.8 7.1 6.5
Azerbaijan .. 10.7 8.4 7.6 6.8 6.5 6.0 5.9 5.6 5.5
Belarusc 3.0 3.1 1.9 1.5 1.1 1.0 0.8 0.9 0.7 0.7
Georgiad 12.6 11.5 12.6 13.8 13.6 13.3 16.5 16.9 16.3 ..
Kazakhstan 9.3 8.8 8.4 8.1 7.8 7.3 6.6 6.6 5.8 5.6
Kyrgyzstanc 3.1 2.9 2.9 3.3 3.5 3.3 2.9 2.8 .. ..
Republic of Moldovac 6.8 8.0 8.2 7.3 7.4 5.1 4.0 6.4 7.5 7.8
Russian Federation 7.9 8.2 7.8 7.2 7.2 6.1 6.4 8.4 7.5 6.7
Tajikistanc 2.6 2.3 2.0 2.1 2.3 2.5 2.1 2.1 2.2 2.1
Turkmenistanc 2.5 2.5 .. 3.7 .. 3.6 2.5 2.2 .. ..
Ukraine 9.6 9.1 8.6 7.2 7.4 6.6 6.4 8.8 8.1 8.0
Uzbekistanc 0.4 0.3 0.4 0.3 0.3 0.2 0.2 0.2 0.2 0.2


Africa


Algeria 25.9 23.7 17.7 15.3 12.3 13.8 11.3 10.2 10.0 10.0
Botswana .. 23.8 .. .. 17.6 20.2 .. .. .. ..
Egypt 10.2 11.9 10.3 11.2 10.7 8.9 8.7 9.4 9.0 12.2
Mauritius 7.2 7.7 8.4 9.6 9.1 8.5 7.2 7.3 7.8 7.8
Morocco 11.6 11.9 10.8 11.0 9.7 9.8 9.6 9.1 9.1 9.2
South Africa 30.0 29.8 27.0 26.6 25.5 23.3 22.9 24.0 24.9 23.9
Tunisiae .. .. .. 12.9 12.5 12.4 12.4 13.3 13.0 16.0


Developing America


Argentinaf, g 19.7 17.3 13.6 11.6 10.2 8.5 7.9 8.7 7.7 7.4
Barbados 10.3 11.0 9.8 9.1 8.7 7.4 8.1 10.0 10.8 10.0
Boliviaf 8.7 9.2 6.2 8.1 8.0 7.7 6.7 7.9 7.9 7.6
Brazilh, i 11.7 12.3 11.5 9.8 10.0 9.3 7.9 8.1 6.7 6.3
Chile 9.8 9.5 10.0 9.2 7.7 7.1 7.8 10.8 8.1 7.3
Colombiaj 18.1 17.1 15.8 14.3 13.1 11.4 11.5 13.0 12.4 11.2
Costa Rica 6.8 6.7 6.7 6.9 6.0 4.8 4.8 8.5 7.1 6.0
Dominican Republic 16.1 16.7 18.4 17.9 16.2 15.6 14.1 14.9 14.3 14.1
Ecuadork 8.6 9.8 9.7 8.5 8.1 7.4 6.9 8.5 7.6 7.0
El Salvador 6.2 6.2 6.5 7.3 5.7 5.8 5.5 7.1 .. ..
Guatemala 5.4 5.2 4.4 .. .. .. .. .. .. ..
Honduras 6.1 7.6 8.0 6.5 4.9 4.0 4.1 4.9 6.4 6.0
Jamaica 14.2 11.4 11.7 11.3 10.3 9.8 10.6 11.4 12.4 12.9




154 World Economic Situation and Prospects 2012


Table A.8 (cont’d)


2002 2003 2004 2005 2006 2007 20078 2009 2010 2011b


Mexico 3.0 3.4 3.9 3.6 3.6 3.7 4.0 5.5 5.4 5.4
Nicaragua 11.6 10.2 9.3 7.0 7.0 6.9 8.0 10.5 9.7 9.2
Panama 16.5 15.9 14.1 12.1 10.4 7.8 6.5 6.6 6.5 5.6
Paraguayf 14.7 11.2 10.0 7.6 8.9 7.2 7.4 8.0 6.9 7.4
Peruf, l 9.4 9.4 9.4 9.6 8.5 8.4 8.4 8.4 7.9 9.4
Trinidad and Tobago 10.4 10.5 8.4 8.0 6.2 5.6 4.6 5.3 6.1 6.2
Uruguayf 17.0 16.9 13.1 12.2 10.9 9.2 7.7 7.3 6.8 6.2
Venezuela, Bolivarian Republic of 15.8 18.0 15.3 12.4 10.0 8.5 6.9 7.9 8.5 9.3


Developing Asia


China 4.0 4.3 4.2 4.2 4.1 4.0 4.2 4.3 4.2 4.1
Hong Kong SARm 7.3 7.9 6.8 5.6 4.8 4.0 3.5 5.2 4.3 3.5
India .. .. 5.0 .. .. .. .. 9.4 .. ..
Indonesia 9.1 9.5 9.9 11.2 10.4 9.4 8.4 8.0 7.2 6.8
Iran, Islamic Republic of 12.8 .. 10.3 11.5 .. 10.5 10.3 11.5 13.5 11.3
Israel 10.3 10.7 10.4 9.0 8.4 7.3 6.1 7.6 6.7 5.6
Jordan 14.4 14.8 12.5 14.8 14.0 13.1 12.7 12.9 12.5 12.3
Korea, Republic of 3.3 3.6 3.7 3.7 3.5 3.2 3.2 3.6 3.7 3.4
Malaysia 3.5 3.6 3.6 3.6 3.3 3.3 3.3 3.6 3.3 3.1
Pakistan 8.3 8.3 7.7 7.7 6.2 5.3 5.2 5.5 5.8 6.0
Palestinian Occupied Territory 31.3 25.6 26.8 23.5 23.6 21.5 26.0 24.5 23.7 25.9
Philippinesn, o 10.2 10.2 10.9 7.8 7.9 7.3 7.4 7.5 7.3 7.2
Saudi Arabia 5.3 5.6 5.8 6.1 6.3 6.1 6.3 6.3 6.2 5.9
Singapore 3.6 4.0 3.4 3.1 2.7 2.1 2.1 3.0 2.2 2.0
Sri Lankap 8.8 8.1 8.1 7.7 6.5 6.0 5.4 5.8 5.0 4.3
Taiwan Province of China 5.2 5.0 4.4 4.1 3.9 3.9 4.1 5.8 5.2 4.4
Thailand 2.4 2.2 2.1 1.8 1.5 1.4 1.4 1.5 1.0 0.8
Turkey 10.3 10.5 10.3 10.3 9.9 10.2 10.9 14.0 11.9 10.1
Viet Namf 6.0 5.8 5.6 5.3 4.8 4.6 4.7 4.6 4.3 4.3


Source: UN/DESA, based on data of the Economic Commission for Europe (ECE); ILO LABORSTAT database and KILM 6th edition; Economic
Commission for Latin America and the Caribbean (ECLAC); and national sources.
a As a percentage of labour force. Reflects national definitions and coverage. Not comparable across economies.
b Partly estimated.
c End-of-period registered unemployment data (as a percentage of labour force).
d Georgia officially left the Commonwealth of Independent States on 18 August 2009. However, its performance is discussed in the context of this


group of countries for reasons of geographic proximity and similarities in economic structure.
e New methodology starting in 2005.
f Urban areas.
g Break in series: new methodology starting in 2003.
h Six main cities.
i Break in series: new methodology starting in 2002.
j Thirteen main cities.
k Covers Quito, Guayaquil and Cuenca.
l Metropolitan Lima.
m Special Administrative Region of China.
n Partly adopts the ILO definition; that is to say, it does not include one ILO criterion, namely, “currently available for work”.
o Break in series: new methodology starting in 2005.
p Excluding Northern and Eastern provinces.




155Annex tables


Table A.9
Major developed economies: quarterly indicators of growth, unemployment and inflation, 2009-2011


Percentage


2009 2010 2011


I II III IV I II III IV I II III


Growth of gross domestic producta
(percentage change in seasonally adjusted data from preceding quarter)


Canada -7.9 -3.7 1.7 5.0 5.6 2.3 2.5 3.1 3.5 -0.5 3.5
France -6.1 0.3 1.0 2.4 0.4 2.1 1.7 1.3 3.8 -0.2 1.6
Germany -15.1 1.3 3.3 2.9 2.1 8.0 3.2 1.9 5.5 1.2 2.0
Italy -11.5 -1.1 1.4 -0.2 2.6 1.9 1.3 0.3 0.5 1.2 ..
Japan -17.7 8.4 -2.3 6.4 10.2 0.1 2.9 -2.7 -2.7 -1.3 6.0
United Kingdom -6.1 -0.8 0.9 3.0 0.6 4.3 2.5 -2.0 1.6 0.4 2.0
United States -6.7 -0.7 1.7 3.8 3.9 3.8 2.5 2.3 0.4 1.3 2.0
Major developed economies -9.7 0.8 1.1 3.7 4.2 3.3 2.5 0.9 0.9 0.6 ..
Euro area -10.2 -0.8 1.8 1.6 1.3 3.8 1.6 1.1 3.1 0.7 0.6


Unemployment rateb
(percentage of total labour force)


Canada 7.8 8.4 8.5 8.4 8.2 8.0 8.0 7.7 7.7 7.5 7.2
France 9.0 9.5 9.6 10.0 9.9 9.8 9.8 9.7 9.7 9.7 9.9
Germany 7.6 7.9 7.9 7.7 7.5 7.2 6.9 6.6 6.3 6.0 5.9
Italy 7.4 7.6 8.0 8.3 8.5 8.6 8.2 8.3 8.2 8.1 8.2
Japan 4.5 5.1 5.4 5.3 5.0 5.1 5.0 5.0 4.7 4.6 4.4
United Kingdom 7.0 7.7 7.8 7.7 7.9 7.7 7.7 7.8 7.7 7.9 8.3
United States 8.2 9.3 9.7 10.0 9.7 9.6 9.6 9.6 8.9 9.1 9.1
Major developed economies 7.3 8.1 8.4 8.5 8.3 8.2 8.1 8.1 7.7 7.8 7.7
Euro area 9.0 9.5 9.8 10.0 10.1 10.2 10.1 10.1 10.0 10.0 10.2


Change in consumer pricesc
(percentage change from preceding quarter)


Canada -1.3 3.5 0.4 0.6 2.0 2.5 2.2 2.3 3.3 5.6 0.8
France -1.7 2.3 -0.3 1.4 2.4 3.8 -0.5 1.9 2.8 4.8 -0.2
Germany -0.5 1.0 0.6 0.2 1.4 1.9 1.2 1.9 3.7 3.2 1.8
Italy -5.3 7.0 -2.5 4.2 -3.2 8.2 -1.9 5.4 -2.1 11.0 -3.0
Japan -4.9 0.0 -1.2 -2.0 -0.2 0.5 -2.2 0.8 -1.2 0.9 0.0
United Kingdom -1.6 4.6 2.4 3.0 3.0 5.3 1.1 4.1 6.1 6.3 2.5
United States -1.8 4.1 2.9 0.7 1.5 2.2 0.4 1.1 5.1 7.2 1.7
Major developed economies -2.4 3.2 1.2 0.7 1.1 2.7 -0.1 1.8 3.2 5.7 1.0
Euro area -2.7 3.4 -1.1 2.2 0.0 5.4 -0.6 3.4 1.8 6.6 -0.9


Source: UN/DESA, based on Eurostat, OECD and national sources.


a Expressed as an annualized rate. Calculated as a weighted average, where weights are based on annual GDP valued in 2005 prices and exchange
rates.


b Seasonally adjusted data as standardized by OECD.
c Expressed as an annualized rate. Calculated as a weighted average, where weights are based on 2005 GDP in United States dollars.




156 World Economic Situation and Prospects 2012


Table A.10
Selected economies in transition: quarterly indicators of growth and inflation, 2009-2011


Percentage


2009 2010 2011


I II III IV I II III IV I II III


Rates of growth of gross domestic producta


Armenia -6.3 -18.6 -19.7 -7.8 3.4 8.2 -2.9 2.4 1.2 3.9 ..
Azerbaijan 5.8 6.0 7.3 16.7 4.2 3.7 3.3 5.1 .. .. ..
Belarus 1.1 -0.4 -1.1 1.7 4.0 8.9 7.1 10.2 10.9 11.4 ..
Croatia -6.7 -6.9 -5.7 -4.6 -2.3 -2.3 0.3 -0.6 -0.8 0.8 0.6
Georgia -4.8 -9.0 -1.5 0.0 3.9 8.7 6.7 6.0 5.8 4.7 ..
Kazakhstan -4.5 -2.6 -0.3 10.3 7.3 8.0 7.2 5.6 6.6 7.6 7.0
Kyrgyzstan -1.8 0.3 4.6 5.5 18.5 -5.7 -7.2 -2.3 0.4 .. ..
Republic of Moldova -4.5 -5.2 -6.6 -6.9 6.6 6.9 7.2 7.0 .. .. ..
Russian Federation -9.2 -11.1 -8.6 -2.6 3.5 5.0 3.1 4.5 4.1 3.4 ..
The former Yugoslav Republic of Macedonia -1.4 -2.4 -2.1 2.0 -0.5 1.5 2.1 3.8 5.1 5.3 ..
Ukraine -19.6 -17.3 -15.7 -6.7 4.8 5.5 3.6 4.2 5.3 3.8 6.6


Change in consumer pricesa


Armenia 2.0 3.3 3.4 4.9 9.1 6.8 8.1 8.7 11.1 8.8 5.8
Azerbaijan 8.2 -0.7 -1.0 -0.5 3.8 6.0 5.6 7.2 8.9 8.5 8.3
Belarus 15.6 13.9 12.4 10.2 6.1 6.8 7.7 10.0 12.6 31.6 63.0
Bosnia and Herzegovina 1.6 -1.0 -1.4 -0.7 1.7 2.5 1.8 2.5 3.5 4.1 4.0
Croatia 3.8 2.8 1.2 1.6 0.9 0.7 1.1 1.5 2.2 2.3 2.1
Georgia 2.8 2.3 -0.8 3.0 4.7 4.4 8.8 10.4 13.3 12.6 6.7
Kazakhstan 8.8 8.3 6.4 5.9 7.3 6.9 6.6 7.6 8.5 8.4 8.8
Kyrgyzstan 16.2 9.1 2.8 0.6 2.6 3.1 9.1 17.2 20.5 22.5 17.2
Republic of Moldova 3.1 -0.9 -1.7 -0.6 5.8 8.0 7.9 7.9 6.1 7.1 8.8
Russian Federation 13.7 12.4 11.4 9.2 7.2 5.9 6.2 8.1 9.5 9.5 8.1
The former Yugoslav Republic of Macedonia 0.9 -0.4 -0.6 -1.0 1.3 1.9 2.3 3.0 3.8 4.5 3.6
Ukraine 20.4 15.1 15.3 13.3 11.2 8.3 8.5 9.4 7.7 10.8 8.5


Source: UN/DESA, based on data of the Economic Commission for Europe and national sources.


a Percentage change from the corresponding period of the preceding year.




157Annex tables


Table A.11
Major developing economies: quarterly indicators of growth, unemployment and inflation, 2009-2011


Percentage


2009 2010 2011


I II III IV I II III IV I II III


Rates of growth of gross domestic producta


Argentina 2.0 -0.8 -0.3 2.6 6.8 11.8 8.6 9.2 9.9 9.1 ..
Brazil -1.8 -1.2 -0.2 4.8 9.3 9.2 6.7 5.0 4.2 3.1 ..
Chile -2.5 -4.8 -1.4 2.1 1.7 6.4 6.9 5.8 9.9 6.6 4.8
China 6.4 7.8 9.0 10.8 11.9 10.3 9.6 9.8 9.7 9.5 9.1
Colombia 1.1 0.7 1.1 2.9 4.1 4.7 3.4 4.8 5.1 5.2 ..
Ecuador 2.8 0.5 -1.2 -0.5 0.4 2.5 4.5 7.0 8.6 8.9 ..
Hong Kong SARb -7.0 -2.9 -3.4 2.7 8.0 6.7 6.9 6.4 7.5 5.3 4.3
India 5.8 6.0 8.6 6.5 9.4 9.3 8.9 8.3 7.8 7.7 6.9
Indonesia 4.5 4.1 4.2 5.4 5.7 6.2 5.8 6.9 6.5 6.5 6.5
Israel 0.8 0.1 -0.1 2.5 2.0 5.8 5.2 6.4 7.0 3.5 5.1
Korea, Republic of -4.3 -2.2 1.0 6.0 8.5 7.5 4.4 4.7 4.2 3.4 3.4
Malaysia -6.2 -3.9 -1.2 4.4 10.1 9.0 5.3 4.8 4.9 4.3 5.8
Mexico -7.4 -9.6 -5.5 -2.0 4.5 7.6 5.1 4.4 4.5 3.2 4.5
Philippines 0.5 1.2 0.2 2.1 8.4 8.9 7.3 6.1 4.6 3.1 3.2
Singapore -8.9 -1.7 1.8 3.8 16.9 19.4 10.5 12.0 9.3 1.0 5.9
South Africa -1.4 -2.6 -2.1 -0.6 1.7 3.1 2.7 3.8 3.5 3.0 3.1
Taiwan Province of China -8.6 -7.2 -1.2 9.2 13.6 12.9 10.7 7.1 6.2 5.0 3.4
Thailand -7.0 -5.2 -2.8 5.9 12.0 9.2 6.6 3.8 3.2 2.7 3.5
Turkey -14.7 -7.8 -2.8 5.9 12.2 10.2 5.3 9.2 11.6 8.8 ..
Venezuela, Bolivarian Republic of 0.7 -2.5 -4.5 -5.8 -4.8 -1.7 -0.2 0.5 4.8 2.5 4.2


Unemployment ratec


Argentina 8.4 8.8 9.1 8.4 8.3 7.9 7.5 7.3 7.4 7.3 7.2
Brazil 8.6 8.6 7.9 7.2 7.4 7.3 6.6 5.7 6.3 6.3 6.0
Chile 8.6 11.3 11.5 10.4 9.3 8.6 8.2 7.3 7.3 7.1 7.4
Colombia 12.9 11.7 12.2 11.3 12.7 12.0 11.3 11.0 12.2 11.1 10.4
Ecuador 8.6 8.3 9.1 7.9 9.1 7.7 7.4 6.1 7.0 6.4 5.5
Hong Kong SARb 5.2 5.4 5.3 5.1 4.4 4.6 4.4 3.7 3.4 3.6 3.5
Israel 7.1 7.7 7.8 7.5 7.0 5.9 7.2 6.5 5.7 5.2 6.1
Korea, Republic of 3.8 3.8 3.6 3.3 4.7 3.5 3.5 3.3 4.2 3.4 3.1
Malaysia 4.0 3.5 3.5 3.4 3.6 3.4 3.2 3.1 3.1 3.0 3.1
Mexico 5.0 5.2 6.3 5.3 5.3 5.3 5.6 5.3 5.1 5.2 5.7
Philippines 7.7 7.5 7.6 7.1 7.3 8.0 6.9 7.1 7.4 7.2 7.1
Singapore 3.3 3.2 3.3 2.3 2.2 2.2 2.1 2.2 1.9 2.1 2.0
South Africa 23.6 23.6 24.4 24.2 25.2 25.2 25.3 24.0 25.0 25.7 25.0
Taiwan Province of China 5.6 5.8 6.1 5.9 5.7 5.2 5.1 4.9 4.6 4.3 4.4
Thailand 2.1 1.7 1.2 1.0 1.1 1.3 0.9 0.8 0.8 0.6 ..
Turkey 15.8 13.8 13.2 13.2 14.2 11.2 11.1 11.2 11.4 9.5 9.2
Uruguay 7.5 8.0 7.1 6.6 7.4 7.4 6.6 6.0 6.3 6.2 6.0
Venezuela, Bolivarian Republic of 8.2 7.7 7.4 7.3 9.2 8.2 8.9 7.7 9.3 8.4 8.2




158 World Economic Situation and Prospects 2012


Table A.11 (cont’d)


2009 2010 2011


I II III IV I II III IV I II III


Change in consumer pricesa


Argentina 6.6 5.5 5.9 7.1 9.0 10.6 11.1 11.1 10.1 9.7 9.8
Brazil 5.8 5.2 4.4 4.2 4.9 5.1 4.6 5.6 6.1 6.6 7.1
Chile 4.8 1.8 -1.9 -3.0 -0.3 1.2 2.3 2.5 2.9 3.3 3.1
China -0.6 -1.5 -1.3 0.7 2.2 2.9 3.5 4.7 5.1 5.7 6.3
Colombia 6.6 4.8 3.2 2.4 2.0 2.1 2.3 2.7 3.2 3.1 3.4
Ecuador 7.9 5.5 3.5 3.9 4.0 3.2 3.6 3.4 3.4 4.1 4.9
Hong Kong SARb 1.7 -0.1 -0.9 1.3 1.9 2.6 2.3 2.9 4.0 5.1 6.5
India 9.4 8.9 11.8 13.3 15.5 13.8 10.3 9.2 9.0 8.9 9.2
Indonesia 8.6 4.8 2.8 2.6 3.6 4.4 6.1 6.3 6.8 5.9 4.7
Israel 3.4 3.2 3.2 3.6 3.5 2.8 2.0 2.5 4.0 4.1 3.3
Korea, Republic of 3.9 2.8 2.0 2.4 2.7 2.6 2.9 3.6 4.4 4.2 4.8
Malaysia 3.7 1.3 -2.3 -0.2 1.3 1.6 1.8 2.1 2.7 3.3 3.4
Mexico 6.2 6.0 5.1 4.0 4.8 4.0 3.7 4.3 3.5 3.3 3.4
Philippines 6.9 3.2 0.3 2.9 4.3 4.2 3.8 2.9 4.5 5.0 4.8
Singapore 2.6 0.3 -0.1 -0.4 0.9 3.0 3.4 4.0 5.2 4.7 5.5
South Africa 8.4 7.7 6.4 6.0 5.7 4.5 3.5 3.5 3.8 4.6 5.4
Taiwan Province of China 0.0 -0.8 -1.3 -1.3 1.3 1.1 0.4 1.1 1.3 1.6 1.3
Thailand -0.2 -2.8 -2.2 1.9 3.8 3.3 3.3 2.8 3.0 4.1 4.1
Turkey 8.4 5.7 5.3 5.7 9.3 9.2 8.4 7.4 4.4 5.9 6.4
Venezuela, Bolivarian Republic of 29.5 28.2 28.7 28.1 27.4 31.9 29.8 27.3 29.1 24.6 26.5


Sources: IMF, International Financial Statistics, and national sources.
a Percentage change from the corresponding quarter of the previous year.
b Special Administrative Region of China.
c Reflects national definitions and coverage. Not comparable across economies.




159Annex tables


Table A.12
Major developed economies: financial indicators, 2002-2011


Percentage


2002 2003 2004 2005 2006 2007 2008 2009 2010 2011a


Short-term interest ratesb


Canada 2.6 3.0 2.3 2.8 4.2 4.6 3.3 0.7 0.8 1.2
Francec 3.3 2.3 2.1 2.2 3.1 4.3 4.6 1.2 0.8 1.4
Germanyc 3.3 2.3 2.1 2.2 3.1 4.3 4.6 1.2 0.8 1.4
Italyc 3.3 2.3 2.1 2.2 3.1 4.3 4.6 1.2 0.8 1.4
Japan 0.1 0.1 0.1 0.1 0.3 0.7 0.9 0.6 0.4 0.3
United Kingdom 4.0 3.7 4.6 4.7 4.8 6.0 5.5 1.2 0.7 0.8
United States 1.7 1.2 1.6 3.5 5.2 5.3 3.0 0.6 0.3 0.3


Long-term interest ratesd


Canada 5.3 4.8 4.6 4.1 4.2 4.3 3.6 3.2 3.2 3.0
France 4.9 4.1 4.1 3.4 3.8 4.3 4.2 3.6 3.1 3.4
Germany 4.8 4.1 4.0 3.4 3.8 4.2 4.0 3.2 2.7 2.8
Italy 5.0 4.3 4.3 3.6 4.0 4.5 4.7 4.3 4.0 5.0
Japan 1.3 1.0 1.5 1.4 1.7 1.7 1.5 1.3 1.2 1.2
United Kingdom 4.9 4.5 4.9 4.4 4.5 5.0 4.6 3.6 3.6 3.4
United States 4.6 4.0 4.3 4.3 4.8 4.6 3.7 3.3 3.2 3.0


General government financial balancese


Canada -0.1 -0.1 0.9 1.5 1.6 1.4 0.0 -5.5 -5.5 -4.9
France -3.1 -4.1 -3.6 -2.9 -2.3 -2.7 -3.3 -7.5 -7.1 -5.8
Germany -3.8 -4.2 -3.8 -3.3 -1.6 0.2 -0.1 -3.2 -4.3 -1.2
Italy -3.1 -3.6 -3.5 -4.4 -3.4 -1.6 -2.7 -5.4 -4.6 -4.0
Japan -8.0 -7.9 -6.2 -6.7 -1.6 -2.4 -2.2 -8.7 -8.1 -8.9
United Kingdom -2.1 -3.4 -3.5 -3.4 -2.7 -2.7 -5.0 -11.5 -10.3 -7.2
United States -4.0 -5.0 -4.4 -3.3 -2.2 -2.9 -6.3 -11.3 -10.6 -10.1


Sources: OECD, Economic Outlook; OECD, Main Economic Indicators; and Eurostat.


a Average for the first nine months.
b Three-month Interbank Rate.
c From January 1999 onwards, represents the three-month Euro Interbank Offered Rate (EURIBOR).
d Yield on long-term government bonds.
e Surplus (+) or deficit (-) as a percentage of nominal GNP or GDP. Estimates for 2011.




160 World Economic Situation and Prospects 2012


Table A.13
Selected economies: real effective exchange rates, broad measurement,a 2002-2011


Index: 2000=100


2002 2003 2004 2005 2006 2007 2008 2009 2010 2011b


Developed economies


Australia 99.5 110.9 120.8 127.7 133.1 142.1 141.1 129.7 145.9 156.4
Bulgaria 104.9 110.3 113.1 116.1 125.6 132.3 142.5 139.8 142.7 150.3
Canada 94.7 102.5 104.6 108.1 111.7 112.6 103.4 95.1 101.7 100.4
Czech Republic 118.5 117.3 121.5 129.4 133.5 139.0 156.8 149.2 149.6 156.4
Denmark 106.8 114.0 114.5 112.0 109.9 109.9 110.6 117.4 112.2 109.7
Euro area 104.9 116.7 120.8 119.7 120.8 125.6 131.3 125.4 117.9 120.7
Hungary 113.3 115.0 118.8 118.9 115.4 119.5 121.9 118.8 118.5 116.8
Japan 83.0 82.9 83.6 79.2 72.1 67.3 73.8 83.8 83.9 85.7
New Zealand 111.4 130.5 140.1 147.0 135.7 146.0 134.4 127.3 139.4 145.9
Norway 108.8 108.3 110.4 117.0 122.7 131.8 134.1 129.3 139.3 146.6
Poland 107.4 99.3 101.9 111.2 113.5 117.4 126.0 109.4 114.3 114.8
Romania 111.7 115.7 125.4 151.7 169.1 188.4 178.7 171.4 173.0 175.3
Slovakia 104.0 112.4 116.8 116.9 118.2 128.3 131.6 141.1 129.7 124.6
Sweden 93.7 97.4 96.4 93.4 94.3 97.7 91.9 89.3 92.2 92.4
Switzerland 110.7 112.5 110.2 106.1 101.4 96.5 98.5 107.0 109.7 118.2
United Kingdom 98.6 95.8 99.9 97.5 97.2 99.2 87.4 80.1 80.9 81.0
United States 106.3 98.1 92.0 89.4 86.9 82.8 79.7 88.1 83.6 78.2


Economies in transition


Croatia 106.6 109.8 113.8 114.7 115.6 116.8 124.5 127.3 127.1 126.9
Russian Federation 126.1 130.5 140.0 153.9 169.6 179.5 192.0 181.9 198.1 205.3


Developing economies


Argentina 56.2 62.6 60.9 60.1 58.6 57.8 59.0 57.2 57.6 55.6
Brazil 89.4 98.3 105.5 129.2 140.3 155.0 174.6 167.7 192.2 208.8
Chile 92.9 91.8 99.9 111.6 117.8 117.1 122.6 126.8 126.2 127.3
China 103.0 97.9 96.0 98.2 101.1 103.3 112.3 112.5 113.6 116.4
Colombia 99.0 87.9 94.6 104.7 102.6 110.2 114.2 107.6 124.0 123.7
Ecuador 109.5 112.9 113.2 119.6 128.9 124.3 134.9 109.6 126.5 138.4
Egypt 81.8 65.6 66.3 72.1 74.2 76.5 86.7 85.6 92.4 93.6
Hong Kong SARc 101.7 95.2 90.1 86.6 84.3 80.2 75.9 80.7 77.8 73.6
India 99.0 98.2 99.0 101.2 99.0 106.1 99.1 94.0 100.4 98.8
Indonesia 116.5 123.1 113.4 113.7 141.8 149.1 162.4 163.1 183.9 183.9
Israel 89.9 87.7 85.5 86.4 87.0 88.0 98.1 97.7 102.9 103.9
Korea, Republic of 93.6 93.0 95.1 105.0 110.1 107.7 90.7 78.7 85.3 86.9
Kuwait 109.4 102.5 95.0 96.4 95.3 93.3 97.2 96.6 98.3 98.0
Malaysia 101.7 98.7 100.7 103.3 107.0 112.8 115.7 113.1 124.5 128.4
Mexico 109.3 99.8 97.9 102.8 105.7 105.8 105.6 91.2 98.7 102.1
Morocco 98.8 99.1 97.4 94.9 94.7 93.7 94.2 100.2 96.0 92.0
Nigeria 115.6 107.1 110.6 126.2 134.5 132.1 143.4 137.3 149.7 146.2
Pakistan 99.4 100.2 99.6 101.4 105.0 104.8 104.6 102.4 113.8 125.7
Peru 104.1 100.0 99.6 99.4 99.4 99.7 106.6 105.7 110.1 110.0
Philippines 112.1 107.2 100.4 106.7 129.0 135.5 130.2 129.0 118.3 109.8




161Annex tables


Table A.13 (cont’d)


2002 2003 2004 2005 2006 2007 2008 2009 2010 2011b


Saudi Arabia 102.5 94.5 87.8 85.1 84.2 82.0 83.4 92.2 93.3 89.5
Singapore 95.9 95.5 102.2 106.8 112.1 119.5 125.3 114.4 116.4 119.7
South Africa 80.4 105.5 115.0 117.3 113.1 109.0 99.8 105.2 118.9 118.3
Taiwan Province of China 93.9 89.6 90.8 89.2 89.0 87.8 84.6 76.6 79.7 80.0
Thailand 100.9 100.1 99.8 102.4 111.3 124.5 120.7 111.9 122.6 125.8
Turkey 99.9 109.8 115.1 123.1 120.3 126.8 124.6 114.0 117.0 106.0
Venezuela, Bolivarian Republic of 92.2 93.1 98.4 98.8 107.4 119.1 137.9 188.6 116.8 129.9


Source: JPMorgan Chase.


a Indices based on a “broad” measure currency basket of 46 currencies (including the euro). The real effective exchange rate, which adjusts the
nominal index for relative price changes, gauges the effect on international price competitiveness of the country’s manufactures owing to
currency changes and inflation differentials. A rise in the index implies a fall in competitiveness and vice versa. The relative price changes are
based on indices most closely measuring the prices of domestically produced finished manufactured goods, excluding food and energy, at the
first stage of manufacturing. The weights for currency indices are derived from 2000 bilateral trade patterns of the corresponding countries.


b Average for the first ten months.
c Special Administrative Region of China.




162 World Economic Situation and Prospects 2012


Table A.14
Indices of prices of primary commodities, 2002-2011


Index: 2000=100


Non-fuel commodities Combined index
Manufac-


tured
export
prices


Real prices
of non-fuel


commo-
ditiesa


Crude
petroleumbFood


Tropical
beverages


Vegetable
oilseeds
and oils


Agricul-
tural raw
materials


Minerals
and


metals Dollar SDR


2002 102 89 117 95 87 97 99 99 98 88.3
2003 104 94 137 111 98 105 99 108 97 101.8
2004 119 100 155 125 137 126 112 117 108 130.6
2005 127 126 141 129 173 140 126 120 117 183.5
2006 151 134 148 147 278 183 164 123 149 221.3
2007 164 148 226 164 313 207 178 133 155 250.4
2008 234 178 298 198 332 256 213 139 184 342.2
2009 220 181 213 163 232 213 182 132 161 221.2
2010 230 213 262 226 310 251 218 134 187 280.6


2008 I 223 182 342 201 358 261 216 141 185 335.2
II 272 184 359 211 381 293 239 145 202 425.7
III 245 191 306 216 355 271 225 141 192 411.3
IV 196 155 185 163 236 199 173 130 153 190.3


2009 I 206 164 188 146 182 188 167 126 149 155.5
II 213 175 226 150 214 203 177 129 158 212.0
III 228 186 215 164 252 223 188 134 166 245.3
IV 233 201 224 193 278 237 197 137 173 269.3


2010 I 232 198 234 210 299 245 210 134 183 273.2
II 205 201 233 209 296 231 205 130 178 277.5
III 225 220 258 216 301 246 214 133 185 267.3
IV 257 233 322 268 344 284 242 139 204 303.5


2011 I 274 278 364 315 376 312 264 142 220 365.9
II 261 283 345 303 363 300 249 148 203 407.1
III 270 274 324 290 352 298 248 .. .. 393.2


Sources: UNCTAD, Monthly Commodity Price Bulletin; United Nations, Monthly Bulletin of Statistics; and data from the Organization of the Petroleum
Exporting Countries (OPEC) website, available from http://www.opec.org.


a Combined index of non-fuel commodity prices in dollars, deflated by manufactured export price index.
b The new OPEC reference basket, introduced on 16 June 2005, currently has 12 crudes.




163Annex tables


Table A.15
World oil supply and demand, 2003-2012


2003 2004 2005 2006 2007 2008 2009 2010 2011a 2012b


World oil supplyc, d
(millions of barrels per day) 79.8 83.3 84.3 85.0 84.7 86.7 85.6 87.4 88.5 89.7


Developed economies 17.8 17.4 16.5 16.3 16.0 16.7 16.9 17.2 17.1 17.5
Economies in transition 10.5 11.6 12.0 12.4 12.9 12.9 13.4 13.7 13.8 13.9
Developing economies 49.7 52.5 54.0 54.4 53.6 55.1 53.3 54.5 55.4 56.1


OPECe 30.8 33.1 34.2 34.3 34.6 36.2 34.1 34.8 35.7 36.0
Non-OPEC 18.9 19.4 19.8 20.1 19.0 18.9 19.2 19.7 19.7 20.1


Processing gainsf 1.8 1.9 1.9 1.9 2.2 2.0 2.0 2.1 2.2 2.3


World total demandg 79.3 82.5 83.8 85.1 86.5 86.5 85.5 88.3 89.2 90.6


Oil prices (dollars per barrel)


OPEC basketh 28.1 36.1 50.6 61.1 69.1 94.5 61.1 77.5 107.2 98.0
Brent oil 28.9 38.3 54.4 65.4 72.7 97.6 61.9 79.6 107.0 100.0


Sources: United Nations, World Bank, International Energy Agency, U.S. Energy Information Administration and OPEC.


a Partly estimated.
b Baseline scenario forecasts.
c Including global biofuels, crude oil, condensates, natural gas liquids (NGLs), oil from non-conventional sources and other sources of supply.
d Totals may not add up because of rounding.
e Includes Angola and Ecuador as of January 2007 and December 2007, respectively.
f Net volume gains and losses in the refining process (excluding net gain/loss in the economies in transition and China) and marine transportation


losses.
g Including deliveries from refineries/primary stocks and marine bunkers, and refinery fuel and non-conventional oils.
h The new OPEC reference basket, introduced on 16 June 2005, currently has 12 crudes.




164 World Economic Situation and Prospects 2012


Table A.16
World tradea: changes in value and volume of exports and imports, by major country group, 2003-2013


Annual percentage change


2003 2004 2005 2006 2007 2008 2009 2010b 2011c 2012c 2013c


Dollar value of exports


World 16.1 21.4 13.7 15.2 16.3 14.1 -19.9 17.1 13.9 9.2 10.6
Developed economies 15.3 18.7 9.5 12.6 15.6 11.4 -20.1 13.6 12.4 4.8 7.4


North America 4.8 13.9 11.0 11.5 11.7 10.0 -17.1 17.1 9.7 4.6 8.1
EU plus other Europe 19.3 19.9 9.2 13.6 17.4 11.5 -20.5 10.4 13.8 4.6 7.5
Developed Asia 13.8 21.0 8.5 8.5 11.1 14.0 -23.4 30.5 8.9 7.2 5.4


Economies in transition 25.5 34.6 26.9 24.3 21.6 30.9 -32.0 27.1 17.6 11.9 11.2
South-Eastern Europe 34.1 23.5 12.3 18.5 23.9 18.8 -21.2 10.0 11.8 8.3 9.4
Commonwealth of Independent States 24.6 35.8 28.4 24.8 21.4 32.0 -32.8 28.7 18.1 12.2 11.3


Developing economies 17.2 26.0 21.2 19.2 17.0 17.0 -18.1 21.8 15.9 15.2 14.7
Latin America and the Caribbean 8.0 22.9 20.3 18.6 12.9 15.5 -21.0 31.2 10.3 11.5 8.2
Africa 22.2 24.8 28.8 23.7 14.6 27.2 -22.1 14.3 8.3 10.9 15.9
Western Asia 22.7 31.4 31.2 19.0 15.4 28.3 -26.7 15.1 20.2 9.7 10.2
East and South Asia 18.0 25.9 18.6 18.8 18.6 13.7 -14.8 22.2 17.2 17.5 16.7


Dollar value of imports


World 16.0 21.2 13.4 14.5 16.0 14.4 -20.6 17.5 13.9 9.2 10.6
Developed economies 16.0 19.0 11.4 13.0 13.6 11.3 -22.5 14.2 13.6 5.9 7.7


North America 8.2 16.0 13.0 10.6 6.5 7.6 -22.2 19.7 9.2 4.2 5.5
EU plus other Europe 20.2 20.1 10.5 14.5 17.1 11.6 -22.3 10.9 15.0 5.8 8.5
Developed Asia 13.4 20.5 12.7 9.6 10.5 20.8 -24.8 23.2 16.6 10.9 7.9


Economies in transition 24.7 29.2 19.7 23.8 33.7 28.6 -30.2 21.3 20.4 14.8 13.5
South-Eastern Europe 29.6 24.8 8.1 15.4 30.9 22.2 -28.4 0.3 17.4 7.1 9.8
Commonwealth of Independent States 23.7 30.2 22.1 25.4 34.2 29.7 -30.5 24.6 20.7 15.8 13.9


Developing economies 15.4 26.1 17.4 17.2 19.4 19.3 -15.8 22.9 13.8 13.9 14.7
Latin America and the Caribbean 3.5 20.4 18.7 18.1 19.5 20.7 -20.5 29.0 9.7 13.5 12.9
Africa 19.4 20.2 20.4 18.2 26.9 26.0 -13.4 7.5 16.9 12.0 14.6
Western Asia 18.4 30.4 21.3 19.9 28.8 22.4 -17.5 13.1 13.7 17.4 12.5
East and South Asia 17.7 27.5 16.2 16.4 16.8 17.5 -14.6 25.7 14.4 13.7 15.5


Volume of exports


World 5.1 10.6 7.8 9.4 7.0 2.7 -9.2 12.3 6.4 4.5 5.8
Developed economies 1.9 8.2 5.8 8.5 6.1 1.9 -12.2 11.0 6.1 3.3 5.0


North America 0.5 8.2 5.4 6.7 7.2 3.5 -10.4 10.3 6.0 3.3 6.8
EU plus other Europe 1.8 7.8 5.9 9.2 5.7 1.5 -12.0 10.3 6.7 3.0 4.5
Developed Asia 6.0 11.2 5.7 7.7 7.0 2.1 -17.5 18.2 2.1 6.3 5.5


Economies in transition 11.4 12.9 4.0 7.0 7.4 2.0 -6.9 4.2 5.2 1.9 3.3
South-Eastern Europe 9.4 7.3 8.9 10.3 6.2 3.9 -14.0 13.7 5.0 5.7 5.8
Commonwealth of Independent States 11.6 13.3 3.6 6.8 7.5 1.8 -6.4 3.5 5.2 1.6 3.1


Developing economies 11.0 15.0 12.0 11.2 8.4 4.2 -4.4 15.3 7.0 6.4 7.0
Latin America and the Caribbean 3.8 12.5 7.7 6.5 4.8 1.8 -10.1 11.1 6.4 5.1 4.9
Africa 7.0 7.0 9.4 12.1 4.4 9.2 -5.9 3.7 -2.2 8.6 9.1
Western Asia 15.1 13.5 10.2 6.2 5.6 2.4 -5.9 4.8 5.3 3.7 4.1
East and South Asia 12.8 17.6 14.1 13.7 10.7 4.6 -2.5 20.1 8.6 7.0 7.7




165Annex tables


Table A.16 (cont’d)


2003 2004 2005 2006 2007 2008 2009 2010b 2011c 2012c 2013c


Volume of imports


World 5.8 11.2 8.3 9.5 7.5 2.7 -10.7 13.4 6.7 4.3 5.7
Developed economies 3.8 8.8 6.4 8.1 5.0 0.3 -13.0 10.4 5.3 2.6 4.2


North America 4.4 10.6 6.3 5.9 2.9 -2.0 -13.6 12.6 4.8 2.0 3.7
EU plus other Europe 3.3 7.9 6.4 9.5 6.0 0.8 -12.7 9.6 5.4 2.3 4.4
Developed Asia 5.1 9.5 6.3 4.5 3.9 2.6 -14.0 10.6 6.2 6.3 4.3


Economies in transition 12.5 18.2 10.5 15.7 21.8 11.5 -26.1 11.0 6.4 7.0 8.4
South-Eastern Europe 6.6 12.1 4.2 8.5 12.7 6.1 -19.3 3.9 4.1 5.3 5.7
Commonwealth of Independent States 13.8 19.5 11.8 17.0 23.4 12.3 -27.1 12.2 6.7 7.3 8.8


Developing economies 10.5 16.8 12.5 12.2 11.7 6.6 -4.5 18.7 9.0 6.8 7.8
Latin America and the Caribbean 1.1 14.4 11.1 14.4 13.5 8.5 -15.6 23.5 11.0 6.7 8.0
Africa 8.9 5.7 11.5 11.5 16.5 10.7 -4.2 4.2 7.9 7.5 7.7
Western Asia 15.1 20.3 15.4 10.7 19.7 8.0 -10.6 11.0 10.4 5.5 4.2
East and South Asia 12.4 18.4 12.4 12.0 9.2 5.3 -0.5 21.1 8.5 7.0 8.4


Source: UN/DESA.


a Includes goods and non-factor services.
b Partly estimated.
c Baseline scenario forecasts, based in part on Project LINK.




166 World Economic Situation and Prospects 2012


Table A.17
Balance of payments on current accounts, by country or country group, summary table, 2002-2010


Billions of dollars


2002 2003 2004 2005 2006 2007 2008 2009 2010


Developed economies -286.0 -321.0 -339.4 -528.5 -606.4 -561.9 -673.6 -231.0 -253.1


Japan 112.6 136.2 172.1 165.7 170.4 211.0 157.1 141.8 195.9
United States -457.2 -519.1 -628.5 -745.8 -800.6 -710.3 -677.1 -376.6 -470.9
Europea 63.5 82.8 139.3 80.7 56.2 -4.9 -99.7 88.6 110.2


EU-15 35.2 40.9 104.9 22.3 5.7 7.6 -75.0 21.1 12.9
New EU member States -20.5 -28.5 -45.8 -40.6 -61.4 -102.7 -111.5 -35.2 -36.3


Economies in transitionb 25.4 30.1 56.4 80.3 87.5 56.2 83.8 30.9 69.2


South-Eastern Europe -5.0 -5.7 -7.1 -7.3 -8.5 -15.3 -24.7 -10.7 -7.0
Commonwealth of Independent Statesc 30.6 36.2 63.9 88.2 97.2 73.5 111.4 42.9 77.4


Developing economies 127.1 222.2 283.1 450.0 710.5 795.1 784.5 422.3 520.8


Net fuel exporters 38.4 77.8 127.6 260.2 388.2 349.3 446.8 92.3 233.9
Net fuel importers 88.7 144.4 155.5 189.8 322.3 445.9 337.8 330.0 286.9
Latin America and the Caribbean -14.9 10.6 22.4 37.9 52.5 17.4 -27.9 -22.1 -55.0


Net fuel exporters 5.1 11.5 16.1 28.2 34.6 22.6 42.3 5.7 8.3
Net fuel importers -20.0 -0.8 6.3 9.7 17.9 -5.2 -70.3 -27.8 -63.3


Africa -7.3 0.0 12.1 35.0 85.0 69.0 61.7 -28.5 -3.6
Net fuel exporters -5.1 5.2 24.1 51.5 105.7 102.1 112.6 10.3 34.6
Net fuel importers -2.3 -5.2 -12.0 -16.6 -20.7 -33.1 -50.9 -38.8 -38.3


Western Asia 20.0 39.6 68.7 139.8 182.9 144.1 225.8 40.3 109.4
Net fuel exportersd 24.9 50.8 84.9 163.6 210.2 182.2 271.7 53.6 159.3
Net fuel importers -4.9 -11.2 -16.2 -23.8 -27.2 -38.1 -45.9 -13.3 -49.9


East and South Asia 129.3 172.0 179.9 237.4 390.1 564.5 524.9 432.7 470.0
Net fuel exporters 13.5 10.3 2.6 16.9 37.8 42.4 20.1 22.7 31.7
Net fuel importers 115.9 161.6 177.3 220.5 352.4 522.2 504.9 410.0 438.3


World residuale -133.5 -68.7 0.2 1.8 191.7 289.4 194.7 222.3 336.9


Sources: IMF, World Economic Outlook, September 2011; and IMF, Balance of Payments Statistics.


a Europe consists of the EU-15, the new EU member States and Iceland, Norway and Switzerland.
b Includes Georgia.
c Excludes Georgia, which left the Commonwealth of Independent States on 18 August 2009.
d Data for Iraq not available prior to 2005.
e Statistical discrepancy.




167Annex tables


Table A.18
Balance of payments on current accounts, by country or country group, 2002-2010


Billions of dollars


2002 2003 2004 2005 2006 2007 2008 2009 2010


Developed economies


Trade balance -255.5 -307.5 -421.5 -636.9 -780.7 -778.3 -886.0 -444.3 -548.9
Services, net 92.5 108.9 163.9 201.3 269.1 378.2 420.0 351.7 392.0
Income, net 17.8 48.0 123.0 151.1 145.9 136.8 123.7 174.0 243.2
Current transfers, net -140.7 -170.4 -204.8 -244.0 -240.7 -298.6 -331.3 -312.3 -339.4
Current-account balance -286.0 -321.0 -339.4 -528.5 -606.4 -561.9 -673.6 -231.0 -253.1


Japan


Trade balance 92.5 104.0 128.5 93.8 81.1 105.1 38.4 43.4 91.0
Services, net -40.7 -31.4 -34.3 -24.1 -18.2 -21.2 -20.8 -20.4 -16.1
Income, net 65.8 71.2 85.7 103.5 118.2 138.6 152.6 131.0 133.3
Current transfers, net -4.9 -7.5 -7.9 -7.6 -10.7 -11.6 -13.1 -12.3 -12.4
Current-account balance 112.6 136.2 172.1 165.7 170.4 211.0 157.1 141.8 195.9


United States


Trade balance -474.5 -540.4 -663.5 -780.7 -835.7 -818.9 -830.1 -505.9 -645.9
Services, net 57.1 49.4 58.2 72.1 82.4 122.2 131.8 124.6 145.8
Income, net 25.2 43.7 65.1 68.6 44.2 101.5 147.1 128.0 165.2
Current transfers, net -65.0 -71.8 -88.2 -105.7 -91.5 -115.1 -125.9 -123.3 -136.1
Current-account balance -457.2 -519.1 -628.5 -745.8 -800.6 -710.3 -677.1 -376.6 -470.9


Europea


Trade balance 94.9 104.0 82.2 14.8 -58.1 -89.6 -131.8 23.5 -5.9
Services, net 79.2 96.7 147.5 162.9 216.7 295.0 334.1 267.2 287.9
Income, net -39.3 -26.6 18.1 32.4 34.7 -40.0 -110.2 -28.5 14.8
Current transfers, net -71.2 -91.4 -108.4 -129.3 -137.2 -170.4 -191.8 -173.6 -186.7
Current-account balance 63.5 82.8 139.3 80.7 56.2 -4.9 -99.7 88.6 110.2


EU-15


Trade balance 93.7 103.1 79.6 3.0 -63.9 -71.9 -125.7 -12.6 -50.1
Services, net 50.3 65.1 111.2 120.3 165.7 229.8 253.8 196.2 210.2
Income, net -39.2 -36.6 21.1 23.4 38.8 17.6 -15.8 5.3 36.7
Current transfers, net -69.5 -90.8 -106.9 -124.4 -134.9 -167.9 -187.2 -167.9 -183.8
Current-account balance 35.2 40.9 104.9 22.3 5.7 7.6 -75.0 21.1 12.9


New EU member States


Trade balance -25.5 -29.1 -34.7 -36.0 -51.9 -77.3 -97.0 -24.4 -25.9
Services, net 8.5 8.0 9.5 13.1 15.4 21.8 27.1 22.7 25.7
Income, net -9.8 -15.4 -28.2 -26.5 -35.0 -57.7 -53.7 -44.2 -50.2
Current transfers, net 6.4 8.0 7.7 8.8 10.1 10.6 12.1 10.7 14.1
Current-account balance -20.5 -28.5 -45.8 -40.6 -61.4 -102.7 -111.5 -35.2 -36.3


Economies in transitionb


Trade balance 34.3 43.1 71.2 106.5 128.5 110.0 163.9 94.0 152.5
Services, net -8.3 -7.0 -10.4 -12.1 -11.8 -18.4 -22.0 -18.9 -25.3
Income, net -8.7 -16.4 -17.0 -28.2 -44.3 -51.1 -77.7 -62.2 -75.3
Current transfers, net 8.1 10.5 12.7 14.2 15.1 15.6 19.6 18.1 17.3
Current-account balance 25.4 30.1 56.4 80.3 87.5 56.2 83.8 30.9 69.2




168 World Economic Situation and Prospects 2012


Table A.18 (cont’d)


2002 2003 2004 2005 2006 2007 2008 2009 2010


South-Eastern Europe


Trade balance -14.1 -18.6 -22.6 -23.1 -25.5 -34.3 -44.6 -29.4 -25.0
Services, net 3.5 6.2 6.7 7.3 8.1 9.9 11.8 9.6 9.4
Income, net 0.0 -0.6 -0.3 -1.0 -1.2 -1.9 -3.0 -2.7 -2.7
Current transfers, net 5.6 7.3 9.1 9.5 10.2 11.0 11.2 11.8 11.3
Current-account balance -5.0 -5.7 -7.1 -7.3 -8.5 -15.3 -24.7 -10.7 -7.0


Commonwealth of Independent Statesc


Trade balance 48.9 62.3 94.7 130.8 156.0 147.2 212.4 125.7 180.0
Services, net -11.8 -13.3 -17.2 -19.5 -20.0 -28.4 -33.8 -28.8 -35.3
Income, net -8.8 -15.8 -16.8 -27.3 -43.2 -49.2 -74.5 -59.4 -72.3
Current transfers, net 2.2 2.9 3.1 4.3 4.5 3.9 7.4 5.4 5.0
Current-account balance 30.6 36.2 63.9 88.2 97.2 73.5 111.4 42.9 77.4


Developing economies


Trade balance 222.0 295.2 358.1 550.6 753.5 817.4 844.1 507.5 643.8
Services, net -55.4 -55.5 -50.1 -57.0 -64.0 -69.8 -114.4 -121.6 -130.6
Income, net -118.6 -118.8 -140.6 -192.0 -163.9 -158.8 -177.2 -171.6 -212.3
Current transfers, net 79.6 102.2 117.1 149.5 186.5 208.0 234.1 209.3 221.9
Current-account balance 127.1 222.2 283.1 450.0 710.5 795.1 784.5 422.3 520.8


Net fuel exporters


Trade balance 137.6 185.5 257.1 407.1 526.0 532.9 711.8 347.9 539.1
Services, net -62.3 -68.2 -75.7 -90.3 -110.6 -148.5 -209.9 -193.0 -207.3
Income, net -27.2 -31.7 -48.1 -64.8 -43.4 -45.5 -62.6 -55.7 -89.2
Current transfers, net -10.2 -8.4 -7.3 5.3 13.3 6.0 2.6 -8.9 -11.9
Current-account balance 38.4 77.8 127.6 260.2 388.2 349.3 446.8 92.3 233.9


Net fuel importers


Trade balance 84.4 109.7 101.0 143.5 227.4 284.5 132.3 159.6 104.8
Services, net 6.9 12.8 25.5 33.4 46.7 78.7 95.5 71.3 76.7
Income, net -91.4 -87.1 -92.4 -127.2 -120.6 -113.3 -114.5 -115.9 -123.1
Current transfers, net 89.8 110.6 124.4 144.2 173.2 202.0 231.5 218.2 233.9
Current-account balance 88.7 144.4 155.5 189.8 322.3 445.9 337.8 330.0 286.9


Latin America and the Caribbean


Trade balance 22.1 43.8 59.2 82.4 101.5 72.6 46.6 54.7 48.7
Services, net -12.6 -12.8 -13.5 -16.8 -17.9 -23.0 -31.3 -32.0 -48.0
Income, net -54.1 -58.2 -68.1 -80.9 -95.2 -98.8 -110.1 -102.4 -116.8
Current transfers, net 29.8 37.9 44.8 53.1 64.0 66.7 66.9 57.6 61.0
Current-account balance -14.9 10.6 22.4 37.9 52.5 17.4 -27.9 -22.1 -55.0


Africa


Trade balance 7.1 15.9 33.9 65.2 95.3 96.5 115.4 3.9 48.2
Services, net -9.2 -8.9 -11.6 -15.8 -17.7 -30.8 -54.9 -48.4 -53.6
Income, net -23.0 -27.0 -34.1 -44.5 -40.4 -51.5 -60.7 -43.7 -59.9
Current transfers, net 18.5 20.9 25.3 31.2 49.4 56.5 64.1 61.0 63.6
Current-account balance -7.3 0.0 12.1 35.0 85.0 69.0 61.7 -28.5 -3.6




169Annex tables


Table A.18 (cont’d)


2002 2003 2004 2005 2006 2007 2008 2009 2010


Western Asiad


Trade balance 61.2 83.0 113.2 184.7 237.4 223.2 343.2 166.3 259.7
Services, net -23.4 -21.8 -24.4 -28.0 -45.6 -63.8 -90.9 -83.6 -92.5
Income, net -6.8 -10.2 -8.7 -8.1 5.2 10.8 3.5 -3.6 -12.2
Current transfers, net -11.0 -11.4 -11.4 -8.8 -14.1 -26.0 -30.0 -38.8 -45.5
Current-account balance 20.0 39.6 68.7 139.8 182.9 144.1 225.8 40.3 109.4


East Asia


Trade balance 139.4 168.1 182.1 255.7 370.7 483.4 448.5 403.7 404.3
Services, net -10.9 -13.9 -7.2 -6.7 0.7 24.0 30.0 16.9 35.1
Income, net -27.3 -15.7 -22.5 -47.9 -24.9 -10.5 1.7 -7.8 -5.0
Current transfers, net 14.5 19.6 24.7 33.2 37.8 50.6 62.5 50.4 57.4
Current-account balance 115.7 158.1 177.1 234.2 384.4 547.5 542.7 463.3 491.8


South Asia


Trade balance -7.7 -15.5 -30.3 -37.4 -51.4 -58.2 -109.7 -121.1 -117.1
Services, net 0.8 1.9 6.6 10.3 16.5 23.7 32.7 25.3 28.3
Income, net -7.3 -7.7 -7.2 -10.6 -8.7 -8.7 -11.5 -14.0 -18.4
Current transfers, net 27.9 35.2 33.7 40.8 49.4 60.2 70.6 79.2 85.4
Current-account balance 13.6 13.9 2.9 3.1 5.8 17.1 -17.8 -30.7 -21.8


World residuale


Trade balance 0.8 30.8 7.7 20.2 101.3 149.1 122.0 157.1 247.4
Services, net 28.8 46.4 103.4 132.2 193.3 290.0 283.6 211.1 236.0
Income, net -109.5 -87.3 -34.5 -69.1 -62.4 -73.1 -131.1 -59.9 -44.4
Current transfers, net -53.0 -57.7 -75.0 -80.3 -39.1 -74.9 -77.6 -84.8 -100.1
Current-account balance -133.5 -68.7 0.2 1.8 191.7 289.4 194.7 222.3 336.9


Sources: IMF, World Economic Outlook, September 2011; and IMF, Balance of Payments Statistics.


a Europe consists of EU-15, new EU member States plus Iceland, Norway and Switzerland.
b Includes Georgia.
c Excludes Georgia, which left the Commonwealth of Independent States on 18 August 2009.
d Data for Iraq not available prior to 2005.
e Statistical discrepancy.




170 World Economic Situation and Prospects 2012


Table A.19
Net ODA from major sources, by type, 1990-2010


Donor group
or country


Growth rate of ODA (2009
prices and exchange rates)


ODA as a
percent-


age of GNI


Total ODA
(millions


of dollars)


Percentage distribution
of ODA by type, 2010


Bilateral Multilateral


1990-
2000


2000-
2007 2008 2009 2010 2010 2010 Total


Total
(United
Nations


and
Other)


United
Nations Other


Total DAC
countries -0.6 4.6 11.3 1.0 6.5 0.32 128 728 71.1 28.9 4.6 24.3


Total EU -0.2 5.4 9.7 -0.5 6.7 0.46 70 150 63.0 37.0 4.8 32.1


Austria 11.1 13.7 -11.4 -31.7 8.8 0.32 1 199 50.8 49.2 4.2 45.0
Belgium 0.0 4.7 13.9 12.0 19.1 0.64 3 000 67.9 32.1 4.9 27.2
Denmark 4.5 -1.7 0.2 3.3 4.3 0.90 2 867 70.8 29.2 9.9 19.3
Finland -4.8 7.3 10.7 13.5 6.9 0.55 1 335 62.1 37.9 10.9 27.0
Francea -4.2 4.9 2.1 19.0 7.3 0.50 12 916 59.8 40.2 1.8 38.4
Germany -1.1 6.2 6.9 -11.7 9.9 0.38 12 723 63.0 37.0 2.5 34.5
Greece … 2.8 28.7 -11.7 -16.2 0.17 500 41.4 58.6 2.0 56.6
Ireland 14.9 15.6 7.2 -18.3 -4.9 0.53 895 66.6 33.4 8.6 24.8
Italy -6.9 7.1 13.1 -31.2 -1.5 0.15 3 111 30.1 69.9 3.2 66.8
Luxembourg 17.3 7.0 0.6 3.9 -0.3 1.09 399 66.0 34.0 14.1 19.9
Netherlands 2.6 1.6 4.2 -4.7 2.2 0.81 6 351 75.4 24.6 8.9 15.7
Portugal 5.4 -0.7 22.7 -14.6 31.5 0.29 648 61.0 39.0 2.1 36.9
Spain 3.9 11.9 23.8 -1.3 -5.9 0.43 5 917 67.6 32.4 4.2 28.1
Sweden 0.9 6.8 4.2 7.8 -7.1 0.97 4 527 64.5 35.5 13.9 21.7
United Kingdom 4.2 4.6 25.4 12.1 19.4 0.56 13 763 64.4 35.6 3.6 32.0


Australia 1.8 5.3 5.6 -1.7 12.1 0.32 3 849 90.1 9.9 1.8 8.1
Canada -2.8 5.1 13.1 -9.6 12.7 0.33 5 132 75.2 24.8 5.4 19.5
Japan 0.9 -5.4 10.5 -10.3 11.8 0.20 11 045 66.3 33.7 5.0 28.7
New Zealand 3.0 5.3 11.6 -3.2 -3.9 0.26 353 78.4 21.6 9.9 11.6
Norway 0.5 6.0 -5.0 16.9 3.6 1.10 4 582 79.2 20.8 11.2 9.6
Switzerland 2.3 3.2 7.9 11.7 -4.5 0.41 2 295 75.0 25.0 7.1 17.9
United States -3.3 9.0 18.7 8.1 3.5 0.21 30 154 86.6 13.4 2.9 10.4


Source: UN/DESA, based on OECD/DAC online database, available from http://www.oecd.org/dac/stats/idsonline.


a Excluding flows from France to the Overseas Departments, namely Guadeloupe, French Guiana, Martinique and Réunion.




171Annex tables


Table A.20
Total net ODA flows from OECD Development Assistance Committee countries, by type, 2001-2010


2001 2002 2003 2004 2005 2006 2007 2008 2009 2010


Net disbursements at current prices and exchange rates
(billions of dollars)


Official Development Assistance 52.7 58.6 69.4 79.9 107.8 104.8 104.2 122.0 119.8 128.7
Bilateral official development
assistance 35.3 41.0 50.0 54.6 82.9 77.3 73.4 87.0 83.5 91.5
of which:


Technical cooperation 13.6 15.5 18.4 18.7 20.8 22.4 15.0 17.2 17.5 ..
Humanitarian aid 2.0 2.8 4.4 5.2 7.1 6.7 6.5 8.8 8.6 9.5
Debt forgiveness 2.5 5.3 8.4 7.1 25.0 18.6 9.6 11.1 2.1 ..
Bilateral loans 1.7 1.1 -1.1 -2.8 -0.9 -2.4 -2.3 -1.2 2.5 ..


Contributions to multilateral
institutionsa 17.4 17.6 19.5 25.2 24.9 27.5 30.8 35.0 36.3 37.2


Source: UN/DESA, based on OECD/DAC online database, available from http://www.oecd.org/dac/stats/idsonline.


a Grants and capital subscriptions. Does not include concessional lending to multilateral agencies.




172 World Economic Situation and Prospects 2012


Table A.21
Commitments and net flows of financial resources, by selected multilateral institutions, 2001-2010


Billions of dollars


2001 2002 2003 2004 2005 2006 2007 2008 2009 2010


Resource commitmentsa 72.2 95.3 67.6 55.9 71.7 64.7 74.5 135.2 193.7 245.4


Financial institutions, excluding IMF 41.8 38.5 43.1 45.7 51.4 55.7 66.6 76.1 114.5 119.6
Regional development banksb 19.3 16.8 20.4 21.5 23.0 23.1 31.3 36.1 54.4 45.4
World Bank Groupc 22.0 21.4 22.2 23.7 27.7 31.9 34.7 39.4 59.4 73.4


International Bank for
Reconstruction and
Development (IBRD) 11.7 10.2 10.6 10.8 13.6 14.2 12.8 13.5 32.9 44.2
International Development
Association (IDA) 6.9 8.0 7.6 8.4 8.7 9.5 11.9 11.2 14.0 14.6
International Financial Corporation
(IFC) 3.4 3.2 4.1 4.6 5.4 8.2 10.0 14.6 12.4 14.6


International Fund for Agricultural
Development (IFAD) 0.4 0.4 0.4 0.5 0.7 0.7 0.6 0.6 0.7 0.8


International Monetary Fund 25.7 52.2 17.8 2.6 12.6 1.0 2.0 48.7 68.2 114.1
United Nations operational agenciesd 4.7 4.6 6.7 7.6 7.7 8.3 6.3 10.5 11.0 11.6


Net flows 14.9 2.0 -11.7 -20.2 -39.6 -25.9 -6.8 40.7 52.3 62.5


Financial institutions, excluding IMF 1.4 -11.2 -14.8 -10.2 0.8 5.2 -11.4 21.8 20.4 25.1
Regional development banksb 1.7 -3.9 -8.0 -6.6 -1.7 3.0 5.9 21.2 15.5 9.8
World Bank Groupc -0.3 -7.3 -6.7 -3.7 2.5 2.2 5.5 0.7 4.9 15.4
International Bank for Reconstruction
and Development (IBRD) -4.6 -12.1 -11.2 -8.9 -2.9 -5.1 -1.8 -6.2 -2.1 8.3
International Development
Association (IDA) 4.4 4.8 4.5 5.3 5.4 7.3 7.2 6.8 7.0 7.0


International Monetary Fund 13.5 13.2 3.1 -10.0 -40.4 -31.0 -18.0 18.9 32.0 37.4


Memorandum items (in 2000 purchasing power units)e


Resource commitments 73.7 97.2 62.6 47.8 59.8 54.9 56.0 97.3 146.7 183.1
Net flows 15.2 2.0 -10.8 -17.3 -33.0 -21.9 -5.1 29.3 39.6 46.6


Sources: Annual reports of the relevant multilateral institutions, various issues.
a Loans, grants, technical assistance and equity participation, as appropriate; all data are on a calendar year basis.
b African Development Bank (AfDB), Asian Development Bank (ADB), Caribbean Development Bank (CDB), European Bank for Reconstruction and


Development (EBRD), Inter-American Development Bank (IaDB) (including Inter-American Investment Corporation (IaIC)) and the International
Fund for Agricultural Development (IFAD).


c Data is for the fiscal year.
d United Nations Development Programme (UNDP), United Nations Population Fund (UNFPA), United Nations Children's Fund (UNICEF) and the


World Food Programme (WFP).
e Totals deflated by the United Nations index of manufactured export prices (in dollars) of developed economies: 2000=100.




173Annex tables


Table A.22
Greenhouse gas emissionsa of Annex I Parties to the United Nations
Framework Convention on Climate Change, 1990-2013


Teragram CO2 equivalent


1990 2000 2006 2007 2008 2009 2010b 2011b 2012c 2013c


Annual
growth rate
1990-2013


Cumulative
change


between 1990
and 2013


Australia 418 496 533 542 551 546 539 537 540 540 1.1 29.1


Austria 78 80 90 87 87 80 83 83 85 85 0.4 9.1


Belarus 139 79 88 87 91 88 80 69 58 49 -4.4 -64.7


Belgium 143 145 138 133 135 124 125 122 117 114 -1.0 -20.5


Bulgaria 111 63 68 72 69 59 57 52 49 46 -3.7 -58.3


Canada 591 718 721 750 734 692 696 697 693 692 0.7 17.1


Croatia 31 26 31 32 31 29 28 28 28 28 -0.5 -10.9


Czech Republic 196 148 147 148 142 134 127 126 119 113 -2.4 -42.3


Denmark 69 69 73 68 65 62 57 55 52 50 -1.4 -27.7


Estonia 41 18 19 22 20 17 18 19 19 18 -3.6 -56.8


Finland 70 69 80 78 70 66 66 66 65 64 -0.4 -9.2


France 566 571 558 550 544 522 519 515 504 498 -0.6 -12.0


Germany 1 248 1 042 1 002 980 981 920 911 893 864 838 -1.7 --32.9


Greece 105 126 131 134 129 123 117 108 101 99 -0.2 -5.1


Hungary 97 77 78 75 73 67 62 60 57 55 -2.5 -43.7


Iceland 3 4 4 5 5 5 4 4 4 4 1.2 30.1


Ireland 55 68 69 68 68 62 58 58 57 54 -0.1 -2.1


Italy 519 552 564 555 542 491 509 504 507 507 -0.1 -2.3


Japan 1 267 1 342 1 333 1 365 1 281 1 209 1 235 1 231 1 240 1251 -0.1 -1.2


Latvia 27 10 12 12 12 11 8 5 3 2 -11.3 -93.6


Liechtenstein - - - - - - - - - - 0.4 10.3


Lithuania 50 20 24 26 25 20 19 18 17 15 -5.0 -69.0


Luxembourg 13 10 13 12 12 12 11 11 12 11 -0.7 -14.8


Malta 2 3 3 3 3 3 3 3 3 3 0.9 24.1


Monaco - - - - - - - - - - -1.1 -21.1


Netherlands 212 213 207 205 205 199 195 195 186 179 -0.7 -15.6


New Zealand 59 68 75 73 73 71 70 70 70 70 0.7 18.1


Norway 50 53 53 55 54 51 50 50 50 50 0.0 -0.4


Poland 453 390 405 404 400 383 367 349 328 305 -1.7 -32.7


Portugal 59 81 81 79 78 75 73 68 64 62 0.2 4.3


Romania 256 144 159 155 150 129 114 106 97 88 -4.5 -65.5


Russian Federation 3 369 2 055 2 201 2 206 2 243 2 127 1 895 2 051 2 084 2060 -2.1 --38.9


Slovakia 74 49 50 48 48 43 41 37 33 29 -4.0 -60.6


Slovenia 18 19 21 21 21 19 19 19 19 18 0.0 -0.5


Spain 283 380 426 437 405 368 357 343 336 334 0.7 17.8




174 World Economic Situation and Prospects 2012


Table A.22 (cont’d)


1990 2000 2006 2007 2008 2009 2010b 2011b 2012c 2013c


Annual
growth rate
1990-2013


Cumulative
change


between 1990
and 2013


Sweden 73 69 67 66 64 60 62 64 63 63 --0.6 -13.5


Switzerland 53 52 54 52 53 52 52 52 50 50 -0.3 -6.4


Turkey 187 297 350 380 367 370 398 428 443 467 4.1 149.6


Ukraine 933 400 447 445 432 374 371 378 399 411 -3.5 -56.0


United Kingdom 779 673 648 638 624 570 557 518 490 467 -2.2 -40.0


United States 6 167 7 076 7 117 7 216 7 028 6 608 6 479 6 401 6 288 6 209 0.0 0.7


All Annex I Parties 18 868 17 757 18140 18 284 17 914 16 841 16 431 16 391 16 189 15 999 -0.7 -15.2


Source: UN/DESA, based on data of the United Nations Framework Convention on Climate Change (UNFCCC) online database, available from
http://unfccc.int/ghg_data/ghg_data_unfccc/time_series_annex_i/items/3814.php (accessed 10 November 2011).
Note: Based on the historical data provided by the UNFCCC for the GHG emissions of the Annex 1 Parties up to 2009, DESA/DPAD extrapolated the data
to 2013. The extrapolation is based on the following procedure:


y GHG/GDP intensity for each country is modelled using time-series regression techniques, to reflect the historical trend of GHG/GDP. While the
trend for each individual country would usually be a complex function of such factors as change in structure of the economy, technology change,
emission mitigation measures, as well as other economic and environmental policies, the time-series modelling could be considered a reduced
form of a more complex structural modelling for the relations between economic output and GHG emissions.


y GHG/GDP intensity for each country is extrapolated for the out-of-sample period (2010-2013), using parameters derived from the time-series
regression model.


y In some cases, the extrapolated GHG/GDP intensity for individual countries was adjusted to take account of announced emission control measures
taken by Governments.


y The projected GHG emissions were arrived at using GDP estimates in accordance with the World Economic Situation and Prospects 2012 baseline
forecast and the extrapolated GHG/GDP intensity.


a Without land use, land-use change and forestry.
b Estimated.
c Baseline scenario forecasts.










United Nations publication Copyright © United Nations, 2012
Sales No. E.12.II.C.2 All rights reserved
ISBN 978-92-1-109164-9 Printed at the United Nations, New York
eISBN 978-92-1-055103-8 11-55997




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