Global Economic Prospects for 2012 and 2013 Summary

Prepared by: J.C. Dassanayake 2009/MS/3980

COURSE

: Contemporary issues in business economics

COURSE CODE : BEC 2216 LECTURER : Professor H.D. Karunarathne

BBA LEVEL II SEMESTER VII FACULTY OF MANAGEMENT AND FINANCE UNIVERSITY OF COLOMBO

Global Economic Prospects for 2012 and 2013 The world economy is on the verge of experiencing another recession as a result of poor policy making decisions, persistent job crisis and weakened world GDP growth. The developing countries which rebounded strongly during the recession face an economic slowdown due to vulnerable economic conditions in developed economies. With the prolonged job crisis experienced in developed economies the productivity of the economy is deteriorating. However the aftermath of recession contributes favorably to developing economies strengthening its employment level despite vulnerable job conditions and high underemployment rates. The youth suffer the consequences of recession through persistent unemployment confining developed economies from achieving economic recovery further. Inflation is a major consideration for policy making in developing economies than in developed economies. The world inflation rate is expected to be moderate with the declining demand and international commodity prices. The revival of world trade is expected to decelerate further with the lower trade contribution from developed economies. In general the commodity prices expanded but are unstable in nature with the expectation of recession. Trade in services is heightening and the multilateral trade negotiations are subject to change. The vulnerability in international financial markets restricts the development initiatives of countries. Thereby Systematic financial regulations are important to strengthen the financial market. The prolonged sovereign debt and job crisis, ineffective fiscal policy measures and weakened demand would lead the world economy towards a renewed global recession. And the developing economies would be severely affected varying based on the linkages with the developed economies. The expansion of global imbalances has created challenges for exchange rate stability, becoming a primary concern for policy makers and such rebalance of global balances should not be achieved at the expense of economic growth. Major policy challenges exist in overcoming the effects of global recession where Developed economies would be faced with instability and the developing countries are subject to price level changes and external financing conditions. The policy initiatives taken by the G20 leaders tend to be long run focused and fail to revive the world economy with sustainable growth. This gives rise to the challenge of redesigning the fiscal policy to short term well coordinated fiscal incentives directed towards stronger job creation and sustainable development. Further the international financial market should be strengthened by creating synergies between fiscal and monetary policies and avoiding spillover effects. These initiatives enhance the development financing requirement and should be made available to all developing economies in supporting the sustainable developmental goals.