PM Douglas says global economy remains in a state of uncertainty

A section of the stakeholders at the meeting on Tuesday. (Photo by Erasmus Williams)

BASSETERE, ST. KITTS, SEPTEMBER 11TH 2012 (CUOPM) – On the anniversary of the 9/11 attack on the United States, St. Kitts and Nevis’ Prime Minister the Rt. Hon. Dr. Denzil L. Douglas said the global economy remains in a state of economic uncertainty and this has been going on for about five years.

He told stakeholders from the public and private sectors as well as representatives of the Eastern Caribbean Central Bank (ECCB), the Caribbean Development Bank (CDB) and the International Monetary Fund (IMF) at the annual National Consultation on the Economy on Tuesday that the long anticipated recovery which appeared to be increasing in momentum in 2010 has not materialized.

“Instead the global economy continues to be affected by financial difficulties and sovereign debt crises especially in the Euro-zone. Even though there are prospects for growth it is expected to be weak at best,” said Prime Minister Douglas in his capacity as Minister of Finance.

The one-day consultation is being held under the theme “The Challenge of Fostering Growth Given the Conditions in the Global and Domestic Environments”.

Prime Minister Douglas noted that the topic is being discussed at a very significant and serious time in recent economic history.

“It was exactly eleven (11) years ago, almost to the hour that the world was thrown into shock as news of the 2001, 9/11terrorist attack on the World Trade Centre flooded the airwaves. It was also four (4) years ago, almost to the day, that the ongoing global economic crisis took its first official casualty when on the morning of September 15, 2008 the world awoke to the news that Lehman Brothers had collapsed. The chaos that reigned in the US financial system in the aftermath of this event is now well documented,” said Dr. Douglas.

He noted that a commonly overlooked, but significant feature of the events of 2001 and 2008 is that a gradual weakening of the global economy had preceded both events.

“In the 2001 issue of the World Economic Outlook, the IMF’s assessment of the 9/11 shock noted that ‘the global slowdown that had started most prominently in the United States in 2000 had, by mid-2001, become a synchronized downturn across almost all major regions of the world. This left the global economy particularly vulnerable to a negative impulse through, among other things, an erosion of the financial position of consumers, corporations, and governments.’

And we will all remember that the crash of the US financial markets in 2008 came directly on the heels of a broad based and fairly protracted boom in fuel and food prices. Partly in response to burgeoning demand from China and other emerging economies, oil prices reached as high as US$140 a barrel and, in the face of weak supply responses, oil importing countries were confronted by deteriorating terms of trade and fiscal challenges. In the case of food prices, strong demand from the emerging economies also played a role in triggering the shortages that precipitated the inflationary conditions,” said Prime Minister Douglas.

He also noted that in the initial stages of the global crisis, the strong performance of the emerging economies absorbed the shock and there was a glimmer of hope that conditions would improve in the 2010-11 period. However, these hopes were dashed with emergence of a sovereign debt crisis on the other side of the Atlantic as, first Greece, then Italy and Spain became engulfed in major fiscal difficulties which continue to threaten the stability of the Euro zone.

“The medium term outlook, according to the latest IMF assessment suggests that there will be a slow but uncertain recovery among the advanced economies. In the US, the housing market is expected to perform at levels well below those attained in the 3 year period before the crisis and the political resolution of the public finance challenges is a critical prerequisite for the resumption of sustained growth. In addition, labour market indicators point to a continued slow rate of job creation that is well below the levels required to compensate for the loss of jobs in the pre-crisis years.

In Europe, financial markets are expected to remain under pressure as fiscal challenges persist in Greece, Spain and Italy. In China, growth is expected to moderate and be driven more by internal demand than by exports in light of the guarded outlook for the major Western economies. Fuel prices are expected to remain a challenge for oil importing countries and there are worrying indicators of another round of food price escalation on the horizon,” the Prime Minister told the forum.

“The global economy remains in a state of economic uncertainty and this has been going on for about five years. The long anticipated recovery which appeared to be increasing in momentum in 2010 has not materialized. Instead the global economy continues to be affected by financial difficulties and sovereign debt crises especially in the Euro-zone. Even though there are prospects for growth it is expected to be weak at best,” he said.