Earlier this year, the Doha round of WTO trade talks collapsed (again) after the US, Europe, India and Brazil were unable to reach an agreement on cutting farm subsidies in the West and lowering industrial goods and services barriers in the developing world. India and Brazil blamed the US and Europe for not lowering agricultural subsidies. But the question to ask is why India is even campaigning for lower farm subsidies? India just floated a tender to buy 530,000 tonnes of wheat in the international market... Barring a miracle in productivity, it is likely that India will remain a net importer of wheat for the foreseeable future. So, why ask the US to cut farm subsidies, when it is in effect subsidizing Indian bread?
US growth will slip: UN
The US economy will slow sharply this year and fall behind growth rates in most of the world, according to forecasts in a UN report released last week.
For the first time since 2001, both the European Union, at 2.8%, and Japan, 2.3%, are predicted to have higher GDP growth than the US.
Global growth is pegged at 3.4%, down from 4% in 2006, largely because of the US slowdown, the report said.
High commodity prices continue to boost growth in developing countries...
The economic outlook for developing countries is positive for the first time since the early 1970s, driven in large part by the growth in China and India, according to an annual report by the United Nations Conference on Trade and Development (Unctad).
Developing countries—including many of the world’s poorest nations—will see ongoing benefits from strong demand for primary commodities, and this positive trend in terms of trade since 2003 has allowed such countries to bolster investment in their economies, the 2007 Trade and Development Report said.
Per capita gross domestic product has increased nearly 30% between 2003 and 2007, compared with 10% for the Group of Seven (G-7) highly industrialized countries, the report noted. Overall, the world economy will mark growth for a fifth consecutive year, with a 3.4% expansion this year.
Unctad warned that a major recession in the US could lead to diminished exports for China and India, which are setting the pace for growth for developing countries.
The report also cautioned that North-South bilateral and regional free or preferential trade agreements could prevent poorer nations from developing their industrial sectors and reduce their control over foreign direct investment...
Additionally, the report called for intensified regional cooperation in exchange rate arrangements as a means to reduce the vulnerability of developingcountries...
Bernanke’s test begins
The Federal Reserve is virtually certain to cut the Fed funds rate in the wake of news that the economy is shedding jobs for the first time in four years. But the anticipated easing still comes with risks. It’s not obvious that more liquidity is the solution for what ails the economy. The return of job losses after four years of gains maysimply be the natural ebb and flow of thebusiness cycle.
There’s a general sense that such cycles have been banished to the dustbin of economic history, but that’s a premature conclusion. Yes, the Fed has learnt how to smooth the business cycle with tactical injections of liquidity. But there’s no free lunch and it’s possible that keeping deep recessions at bay all these years has been a temporary triumph that’s had the unintended effect of letting excesses build up to the point that they’re now set to burst forth.
If the cycle is poised to reassert itself on the downside, the Fed will no doubt intervene in an effort to keep the economy bubbling. The past 20 years have shown that it is inclined to do just that. But at what cost? Has the smoothening of the business cycle in the past years dispatched the fallout or simply rolled it into the future?