Though the world economy is sharply contracting in 2009, as recession bites deeper in USA, Europe and Japan, there is some divergence in global institutional assessments of recovery prospects for the global economy. The 30-member OECD, the richman's club, sees a recovery in motion in many large non-OECD countries (like China, India and Brazil) and these countries have not suffered balance-sheet damage that affected banking institutions in advanced economies.

While the pace of deterioration in recession-hit advanced countries appeared to have slowed, the financial sector still needed to be mended, and the emerging recovery likely by the end of this year would be “weak and insufficient to bear down on unemployment at around 10 per cent of labour force” in these countries, says OECD.

More than 57 million people would remain unemployed in OECD area by the end of 2010, according to its Economic Outlook. Unemployment would be around 10 per cent from the average 6.8 per cent at the end of 2008. (By May, the rates were 9.4 per cent in USA, 9.2 in Euro area and 5 per cent in Japan). OECD says such levels of unemployment would continue to weigh on national economies for a long time to come as job recovery always lagged behind the pick-up in economic growth.

ILO's recent Global Job Summit adopted a 'job pact' calling for national and international policies promoting job-generating recovery and providing protection to working people and their families. It asked governments, employers and workers to work collectively to tackle the job crisis, which could linger for six to eight years, with policies set down in ILO's “Decent Work” agenda. With 45 million new entrants to global job market annually, some 300 million jobs would have to be created over the next five years to get back to pre-crisis levels of unemployment, an ILO statement said.

The financial sector, from which the current crisis emanated, must be turned healthy with globally consistent supervisory and regulatory framework to serve the real economy, assist sustainable enterprises and decent work creation, and afford better protection for savings and pensions. Economic recovery requires a wage-led increase in aggregate demand and broadening of social protection, ILO said. President Obama has already placed before US Congress proposals for a new Financial Regulatory Authority under which the Federal Reserve's power would be enlarged to include monitoring globally important institutions and the systemic risks of the financial system as a whole.

OECD's relative optimism on recovery prospects is not equally shared by the World Bank, which sees an era of slower growth with declines in global output (industry mainly), trade and capital flows. For 2009, it expects global contraction in output and trade at 2.9 and 10 per cent respectively, with possibly a marginal recovery in 2010. While observing that the slowdown in developed countries may be “bottoming”, OECD agrees recovery would be weak and fragile while the “economic and social damage caused by the crisis will be long-lasting”.

The number of hungry in poorer countries may cross one billion in 2009, according to the Food and Agriculture Organisation (FAO), due to lower incomes and increased unemployment while access to food for the poor also worsened in countries with high food prices. Investments in developing countries has stalled and despite G-20 Summit commitments, aid flows are not going to needy countries. Developed countries are faced with their own budgetary problems in the aftermath of fiscal stimulus measures.

The World Bank estimates an overall financing gap for developing countries this year at between 350-600 billion dollars. The Bank Group is expected to step up its annual lending to 45 billion dollars including interest-free IDA credits for 2009-011. G-20 accords have strengthened IMF's finances for emergency assistance to member-countries, according to their needs. The Fund is building a total of 750 billion dollars through borrowings, mainly loans from members. Japan, EU and USA have lent to the Fund 100 billion dollars each while others like China and Brazil will contribute smaller sums purchasing notes issued by IMF.

The World Bank has reported a sharp drop in net private capital flows to developing countries while global flows of FDI into both developed and developing countries declined in the first quarter of 2009 by 54 per cent over the corresponding period in 2008.Unlike portfolio investments with large outflows, FDI in India was steady in 2008 and the trend is reportedly maintained in the early months. The UPA Government is expected to raise ceiling for FDI investments in certain sectors in order to attract larger flows.

In the case of BRIC economies, growth projections are negative for Brazil (-1.1 pr cent) and Russia (-7.5 per cent) while China and India are likely to record 7.2 and 5.1 per cent respectively, according to World Bank estimates. OECD projections for the two countries are higher at 7.7 and 5.9 per cent respectively. OECD is encouraged by China's progress with its substantial fiscal and monetary stimuli, which should take its growth to 7.7 per cent this year and 9.25 per cent in 2010.

OECD says with gradual recovery in global economy, India would regain its growth momentum to go up from 5.9 per cent this year to 7.2 per cent in 2010. Reviewing the fiscal and other trends, OECD says the new Government would need to restore fiscal discipline, speed up structural reform and increase sales of public assets. Any further easing should be through lower interest rates rather than discretionary fiscal expansion as deficit was already in the region of 10 to 11 per cent of GDP.

China moans over the loss in exports (down by about 25 per cent) and while claiming to reduce reliance on exports, it has been giving bigger tax rebates for its exporters and loan concessions for trade financing through state-owned banks. On the other hand, its prohibition of exports of raw materials, like bauxite and zinc, in which it is a leading producer, denying access to US industrial manufacturers has brought China into a new trade dispute with USA which contends that such actions are designed to give domestic manufacturers an unfair advantage, violating WTO rules. Such actions would also raise world prices of these materials. China has also been accessing raw material sources abroad to build up inventories with its aid and investment strategy in producing countries. China continues to make trade and current surpluses, which would be higher than in 2008. (IPA Service)