The world economy will further contract, UNCTAD says

According to the head of the United Nations Conference on Trade and Development Secretary-General Supachai Panitchpakdi the global economy is going to plunge by at least 1% within the current year with more and more developing countries showing their inability to oppose the ever severing financial crisis. On Friday last week Thailand reported a record fall in exports and manufacturing in January.

"We might see more compression on developing country growth and that of course results in a deeper worldwide contraction, so minus 1 (percent) at the moment but it certainly could be deeper than minus 1," said Supachai, a former Thai deputy prime minister and director-general of the World Trade Organisation.

Supachai expressed his concern that Asian countries could suffer the same 30 to 40 percent export declines that hit them in the Asian crisis a decade ago. States that adopted an export-oriented policy to get out of the crisis of those times now are exposed to slumping demand elsewhere in the world. Supachai pointed to the fact that many countries were adopting economic nationalism to promote their exports at the expense of others which were inhibiting normal trade flows.

"It is not the outright protections that you would see, it's not a blatant blockage of the market... for me it's the economic nationalism, the way that quietly, tacitly, countries are urging people to become more self-sufficient," he said.

He notes that while the countries’ ability to provide their internal markets with own goods is not bad the situation when all the countries start declining foreign trade will lead to trade flows contraction and the impoverishment of the whole world.

He also mentioned currency manipulations practiced by some countries to help their exports noting that this policy won’t do any good in the environment when the overall market is contracting. Besides, Supachai said that there is a necessity to set the issue of national stakes in banks.

"You cannot have nationalised financial institutions competing with private institutions and be seen to be still compliant to WTO rules," he said.