Global Growth at risk from slow reform progress

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Global growth concept[www.inewsguyana.com] – The health of the global economy is at risk, despite years of bold monetary policy, as countries struggle to implement structural reforms necessary to help economies grow, according to the Global Competitiveness Report 2014-2015 released by the World Economic Forum.

 In its annual assessment of the factors driving countries’ productivity and prosperity, the report identifies uneven implementation of structural reforms across different regions and levels of development as the biggest challenge to sustaining global growth. It also highlights talent and innovation as two areas where leaders in the public and private sectors need to collaborate more effectively in order to achieve sustainable and inclusive economic development.

According to the report’s Global Competitiveness Index (GCI), the United States improves its competitiveness position for the second consecutive year, climbing two places to third on the back of gains to its institutional framework and innovation scores. Elsewhere in the top five, Switzerland tops the ranking for the sixth consecutive year, Singapore remains second and Finland (4th) and Germany (5th) both drop one place. They are followed by Japan (6th), which climbs three places and Hong Kong SAR (7th), which remains stable. Europe’s open, service-based economies follow, with the Netherlands (8th) also stable and the United Kingdom (9th) going up one place. Sweden (10th) rounds up the top-10 of the most competitive economies in the world.

The leading economies in the index all possess a track record in developing, accessing and utilizing available talent, as well as in making investments that boost innovation. These smart and targeted investments have been possible thanks to a coordinated approach based on strong collaboration between the public and private sectors.

Some of the world’s largest emerging market economies continue to face difficulties in improving competitiveness. Saudi Arabia (24th), Turkey (45th), South Africa (56th), Brazil (57th), Mexico (61st), India (71st) and Nigeria (127th) all fall in the rankings. China (28th), on the contrary, goes up one position and remains the highest ranked BRICS (Brazil, Russia, India, China, and South Africa)economy.

To boost its economic resilience and keep the economic momentum of past years, Latin America (Guyana is group into this category for this report) finds its major economies still in need of implementing reforms and engaging in productive investments to improve infrastructure, skills and innovation. Chile (33rd) continues to lead the regional rankings ahead of Panama (48th) and Costa Rica (51st).

We are at a time when the world seems to be finally emerging from the worst financial and economic crisis of the past 80 years and returning to a pre-crisis situation: large interest rate spreads for public debt in hard-hit countries are falling; banking systems seem more robust, even if financial reform has not yet been completed; and access to credit, while still limited, is slowly recovering.

“The strained global geopolitical situation, the rise of income inequality, and the potential tightening of the financial conditions could put the still tentative recovery at risk and call for structural reforms to ensure more sustainable and inclusive growth,” said Klaus Schwab, Founder and Executive Chairman of the World Economic Forum.

Xavier Sala-i-Martin, Professor of Economics at Columbia University in the US has stated that: “Recently we have seen an end to the decoupling between emerging economies and developed countries that characterized the years following the global downturn. Now we see a new kind of decoupling, between high and low growth economies within both emerging and developed worlds. Here, the distinguishing feature for economies that are able to grow rapidly is their ability to attain competitiveness through structural reform.”

For the Guyanese economy, the GCI 2014 – 2015 reports has indicated that we are at the efficiency drive stage of development. Guyana attained a rank of 117 out of 144 economies and a score of 3.6 out of 7 in its level of competitiveness.

Latin America and the Caribbean The economic deceleration that started in 2012 continued in 2013, with an estimated growth rate for the region below 3 percent. For 2014, growth forecasts are not more optimistic and, according to the IMF, the region is poised to grow at only 2.5 percent, below the trend of recent years. Overall, the region continues to suffer from strong headwinds related to weak investments, a fall in exports and commodity prices, and tighter access to finance that, to a large extent, fueled growth in recent years.

Building the economic resilience of the region will depend on its capacity to strengthen the fundamentals of its economy by boosting its level of competitiveness.  However, regional productivity continues to be low and trailing other emerging or advanced economies. A lack of sufficient investments in growth-enhancing areas, such as infrastructure, skills development, and innovation, coupled with insufficient and delayed reforms needed to improve business conditions and the allocation of resources, result in a certain inability of the local economies of the region to move toward more productive sectors and thus, higher levels of competitiveness.

The need to boost competitiveness by undertaking the necessary investments and by fully and efficiently implementing structural reforms has become not only important but also urgent if the region is to be able to consolidate the economic and social gains that many countries have experienced in past years. Becoming more resilient and less affected by external fluctuations will depend on this.

[Analyst]

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