UNCTAD: World economy in 2016 is in a fragile state - Rabobank

Michael Every, Head of Financial Markets Research at Rabobank, notes that the UN Conference on Trade and Development (UNCTAD) has released its Trade and Development Report 2016 and it is devastating.

Key Quotes

“It starts “The world economy in 2016 is in a fragile state,” adds that “Neither financial bubbles nor export surges offer a sustainable solution to the tepid growth and weak labour market conditions,” and complains “there is no sign of a concerted move towards policy coordination among systemically important economies…a more ambitious policy package is needed to address existing imbalances and ease the constraints on faster growth, whether in large or small countries, surplus or deficit economies, commodity or manufacturing exporters, creditors or debtors. A global new deal will need to move beyond business as usual.”

UNCTAD argues this requires proactive OECD fiscal policy (i.e., helicopter money); stronger financial regulations; redistributive measures through an incomes policy; minimum wage legislation; and progressive taxation and welfare-enhancing social programmes. It also contests that business management focused on “beat the number” quarterly earnings rather than productive long-run investment is undermining the global economy, with share buybacks being prioritized over capital stock: it suggests a change in tax policy to favour retained earnings.

Meanwhile, developing countries are seen at risk of a debt crisis following years of borrowing and following OECD trends of over-investment in housing/under-investment in productive assets; they are seen as requiring “more flexible international rules,” including fiscal stimulus and capital controls.”