It is a special pleasure for me to join you today as moderator and to make this, my first official statement as the Under-Secretary-General for Economic and Social Affairs.
In the sweep of day-to-day events, ECOSOC’s policy dialogue offers a rare opportunity. It brings together the heads of the world’s trade and financial institutions to give the Council our institutional viewpoints on the state of the world economy – and to have an open discussion with participants.
What I want to say today draws on the recent update of the World Economic Situation and Prospects (WESP) as of Mid-2007 and the World Economic and Social Survey.
These flagship reports make clear that, after a solid and broad-based growth for the past few years, the pace of world economic growth is slowing. We expect the world economy to expand by 3.4 per cent in 2007 and 3.6 per cent in 2008, down from 4.0 per cent in 2006. Yet, this forecast is surrounded by much uncertainty, with the risks mainly on the downside. Addressing these risks requires policy responses that are coordinated internationally.
Currently, the major drag on the world economy is a slow-down in the United States, as its housing sector is falling into recession. Growth in the rest of the world remains robust.
The recent economic expansion in Europe and Japan has been stronger than anticipated. But their potential growth is not high enough to act as an alternative to the United States as the major engine for global growth.
The strength of economic growth in the developing countries and economies in transition is generated partly by the synergy within this group. This stems particularly from the sustained rapid growth in China and India. Growth in most of these economies, however, is still highly dependent on the international economic environment. And that remains largely determined by the economic performance and policies of the major developed countries.
Encouragingly, the past few years have seen a strong growth in the least developed countries (LDCs). Economic growth for this group as a whole has been above 6 per cent since 2001. For a number of LDCs, this has notably improved the prospects for achieving the Millennium Development Goals (MDGs). But we must recognize that the economic performance is far from homogenous among these poor economies – and not all show adequate growth.
In recent years, the international economic environment has been favourable for most developing countries. They have been able to benefit from dynamic trade flows, high commodity prices, low external financing costs, and ample availability of international liquidity. Their vulnerability shows, however, in the increased volatility in the prices of commodities and in the equity markets of many emerging economies witnessed in mid-2006 and early 2007. We should also note the marked increases in the long-term interest rates of the US treasury notes in early June 2007, which brought the rates to five-year highs. These rates are the benchmark for determining the financial costs of many developing countries.
To sustain the salutary international economic environment, more efforts are needed to move ahead with the multilateral trade negotiations under the Doha Round in the World Trade Organization, which were suspended last July. We shall no doubt hear much more on this subject from Mr. Supachai Panitchpakdi and Mr. Pascal Lamy.
The update of the WESP points to another challenging issue: generally weak employment creation in developing countries. Despite robust output growth in recent years in most developing countries, their unemployment rates have improved little or not at all over the past decade. In addition, a substantial share of employment in developing economies is in sectors of low productivity. Creation of more productive employment will be critical to their efforts to reduce poverty.
Let me turn now to one of the dark clouds on the horizon which is a major concern. We see an unsustainable pattern of global imbalances, characterized by a growing financial deficit of the United States’ economy. This is being matched by increasing surpluses in other parts of the world, especially in developing countries. Net foreign liabilities of the United States now exceed $3 trillion, putting downward pressure on the value of the dollar. A more severe loss in confidence in the dollar could provoke abrupt adjustments in the global economy. This could destabilize the international financial system, derail global economic growth, and jeopardize the prospects of achieving the MDGs.
The key question is how to achieve a benign adjustment of the global imbalances, with minimum adverse impact on the stability and growth of the world economy. In our view, such an adjustment will require international policy coordination. Moving in this direction, the International Monetary Fund hosted a round of consultations in 2006. This has not yet led to any concrete actions, however. We urgently need to establish such multilateral consultations as a new and institutionalized mechanism of international policy coordination with broad representation, including from developing countries.
For the IMF to serve as the impartial mediator in such a mechanism, it will need to reform its own governance and representation. Seats on the Executive Board and votes in the Fund should better reflect today’s realities. A first step in this direction was taken at the annual meetings of the IMF and World Bank in Singapore during 2006. More comprehensive governance reform is still required.
In the long run, only deep and far-reaching reforms of the global monetary and financial system will be able to prevent a similar constellation of global imbalances from arising again and to deal with the asymmetries that are currently inherent in the global adjustment mechanisms.
The ageing of the world population brings other challenges to the prosperity of the world economy. Those challenges, as well as the opportunities it provides, are analyzed in the 60th anniversary report of the World Economic and Social Survey – the "WESS 2007".
Today, there are about 672 million persons aged 60 and above. By 2050, the number of older persons worldwide will be almost 2 billion. This need not be cause for alarm. In fact, population ageing offers governments and societies an opportunity to make increased use of the talents and creativity of an increasing number of active older persons. Of course, it will bring, at the same time, major challenges. These will be more pressing in developing countries, where ageing is taking place at an accelerated pace and where now lives the majority of the world’s older persons. In 2005, 63 per cent of the world’s population aged over 60 lived in developing countries. By 2050, this percentage is expected to increase to 79 per cent.
About 80 per cent of the world’s people older than 60 years are not sufficiently protected in old age against health, disability, and income risks. The provision of pensions to keep older persons free from poverty is already a major challenge for governments and will be increasingly so.
In developing countries in particular, many older persons are at high risk of falling into poverty. The WESS shows, however, that the provision of a universal social pension at one dollar per day seems to be quite affordable in most developing countries. And it could thus be considered as a viable instrument to keep all older persons out of extreme poverty. For some of the poorest countries, however, such an income support programme may entail a heavier fiscal burden – and require some international support.
The WESS makes the case that provision of adequate economic security during old age can be achieved if three conditions are met: (i) economic growth can be accelerated and sustained; (ii) deeper reforms of existing pension systems are undertaken to adjust to the inevitable process of ageing; and (iii) pension coverage is extended where insufficient. Steps are being taken in this direction in developed countries, where delaying retirement and staying longer in the work force can go a long way to keeping their pension systems viable.
As the ageing of the world population continues at an unprecedented rate, the share of the population that is of working age will shrink, and the labour force itself will grow older. To overcome the possible negative consequences of ageing on economic growth, many responses have been suggested, such as international migration and outsourcing of employment. But these will not serve as solutions. The emphasis must be on gearing policies toward stimulating productivity growth coupled with measures to stem the fall in labour supply, such as raising the participation rates of women and older workers.
We have at hand the Madrid International Plan of Action adopted by the Second World Assembly on Ageing in 2002. It provides the framework for incorporating the dimensions of ageing in the development process and for implementing national policies to promote worldwide “the society for all ages”. But having a framework is not enough. I call on all Member States and other stakeholders to intensify their efforts to mainstream the issues of population ageing into the global development agenda.
In sum, the world economy is going through a phase of unprecedented broad-based growth. Yet, it may be difficult to sustain this momentum, and we should be prepared to deal with the downside risks. We urgently need to take on the challenge posed by the widening global imbalances and erosion of the confidence in the dollar as reserve currency. I call on you to debate the contours of a workable mechanism of effective international policy coordination. Preserving the stability and growth of the world economy will also be essential to confront the challenges posed by the rapid ageing of the world population and to ensure that all of us – and our children – can be assured of a decent standard of living as we grow older and live longer.