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UNCTAD Trade and Development Report 2007 says external environment provides great opportunities for catch-up growth and meeting Millennium Development Goals
The world economy will maintain its momentum and expand for a fifth consecutive year with estimated overall output growth of 3.4% in 2007, a major UNCTAD report predicts.
Developing countries, including many of the poorest, will continue to benefit from strong demand for primary commodities. This positive trend in the terms of trade since 2003 has enabled many developing countries in all regions to strengthen their external and fiscal balances, and to increase investment in their economies. The picture has not been so positive for this group of nations since the early 1970s, UNCTAD´s Trade and Development Report 2007 (1) (TDR) says.
The TDR, as the report is called, finds that the per capita gross domestic product (GDP) in developing countries increased by almost 30% between 2003 and 2007, compared to 10% for the Group of Seven (G-7) highly industrialized countries. In 2007, six years after the start of the global recovery, fewer than 10 out of 143 developing countries are set to record a fall in real per capita income.
China and India are again setting the pace for growth in the developing world, according to the report -- and given their high investment rates, this is likely to continue in the years to come. The main risk, UNCTAD warns, is that a major recession in the United States could sharply curtail these countries´ exports.
Africa is expected to continue economic growth of around 6% in 2007, while Latin America and West Asia will slow down only slightly, to around 5%. The growth performance of all these regions over the past five years raises hopes for significant progress towards meeting the Millennium Development Goals (MDGs), although in a number of individual countries, especially in sub-Saharan Africa, per capita income growth still falls short of what is needed to achieve the reductions in poverty aimed at in the MDGs. A major MDG target is to halve the number of people living in extreme poverty, or less than US$1 per day, by 2015.
In the "transition" economies of South-East Europe and the Commonwealth of Independent States (CIS), per capita income has risen by almost 75% since the beginning of the Millennium, but this recovery came after such a deep depression that current per capita GDP in these economies is still considerably below its level of 1989.
Despite this broadly favourable trend, the relative gap in living standards between the developed and most developing countries remains huge: in 1980 per capita income was 23 times higher in developed than in developing countries. In 2007 the gap had narrowed to 18 times. However, this reduction was entirely due to rapid growth in East and South Asia. For Africa, Latin America, West Asia and the transition economies, the relative gap in 2007 is wider than it was in 1980.
Exports and net capital outflows from developing countries are on the rise
The dynamics of overall growth in developing countries have been stimulated by strong growth in export revenues. Real exports of the developing economies more than doubled between 1998 and 2006, whereas those of the G-7 rose by less than 50%. Among the developing regions, East and South Asia were clearly the most successful in increasing volume. They expanded exports by about 160% between 1998 and 2006. These regions also experienced the most significant deterioration in their terms of trade, mainly as a result of rising prices for industrial raw materials. In other developing regions, export volumes grew at a more moderate pace, but gains from the terms of trade boosted the purchasing power of their exports. Overall, the share of developing countries in global trade rose from 29% in 1996 to 37% in 2006.
The overall current account of developing countries has swung into surplus for the first time since the early 1970s. A number of developing countries have become net exporters of capital on such a scale that on aggregate there has been a net capital outflow from developing countries.
The fact that despite the net capital outflow, domestic capital formation also increased in many developing countries raises doubts about the validity of orthodox development theory in the current global situation, the UNCTAD report says. It points to a need to rethink the most crucial assumptions about functional relationships between savings, investment, capital flows and alternative policies and "catch-up" paths.
