G20 leaders facing world trade 'emergency'
The G20 must create an emergency $50bn (£34.9bn) fund to reignite the flow of goods around the world, as international trade suffers the biggest collapse in the modern era, it has been warned.
By Edmund Conway, Rowena Mason and Angela Monaghan
Published: 5:38AM BST 01 Apr 2009
World trade is in "free fall" and will slump this year at the fastest rate since records began, according to a new report from the Organisation for Economic Co-operation and Development. Its report, which also forecast the biggest slide in global economic output since the Second World War and double-digit unemployment across the Western world, urged the world leaders congregating in London on Wednesday towards urgent action.
World Bank president Robert Zoellick said the leaders, including Gordon Brown and President Barack Obama, must sign up to an urgent plan to provide financing for exporters and traders in the developing world.
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The OECD predicted that world trade will shrink by 13.2pc in 2009. The forecast is worse than those from the World Trade Organisation and World Bank and indicates a faster and more widespread implosion of imports and exports than in any single year during the 1930s.
Expressing exasperation, the OECD's chief economist Klaus Schmidt-Hebbel said: "The collapse of world trade growth cannot be explained by past relationships."
The report said: "Even when global credit conditions are taken into account by means of a proxy it remains difficult to explain the collapse in trade."
However, given that many economists blame the collapse in world trade during the 1930s for intensifying and perpetuating the Great Depression, the forecast and what it augurs is likely to climb towards the top of the G20 agenda. Speaking in London on Tuesday, Mr Zoellick said world leaders must help trade by offering credit to developing world exporters and stopping isolationist economic policies as a "first step" to prevent a social and humanitarian crisis.
"We now estimate that an additional 200,000 to 400,000 babies will die this year because of the drop in growth," he said. "In London, Washington, and Paris people talk of bonuses or no bonuses. In parts of Africa, South Asia and Latin America, the struggle is for food or no food."
He also lashed out at countries including the UK for indulging in "creeping protectionism", with 17 out of the 20 members of the G20 having already enacted protectionist measures.
In the bleakest set of forecasts in its history, the OECD predicted that the world economy would contract by 2¾pc this year. Although the UK will not suffer the worst recession, thanks largely to the fall in the pound and the Bank of England's decision to cut interest rates sharply, economic output will nevertheless contract by 3.7pc this year and 0.2pc cent in 2010. This represents the biggest fall since the Second World War, but is smaller than those experienced by other economies, with Japan shrinking by 6.6pc, Germany by 5.3pc and Italy by 4.3pc in 2009.
The forecasts were met with derision by Italian Prime Minister Silvio Berlusconi, who said: "First they did not see this coming, now they give new forecasts every other day. Shut up!"
The OECD said that although the UK is hamstrung by the size of its government deficit, "if economic circumstances deteriorate significantly more than projected, further fiscal measures would be warranted. However, any additional fiscal stimulus should be accompanied by a stronger and more credible commitment to a robust fiscal consolidation once the recovery takes hold".
George Soros said the success of the G20 meeting was "hovering on a knife edge between success and failure" and would depend on a pledge to increase the global money supply to help poor countries.
In a speech at the London School of Economics, the billionaire investor said the G20 should create about $250bn of the International Monetary Fund's Special Drawing Rates – international reserve assets which can be exchanged for major currencies – to make an impact. IMF member countries are allocated SDRs in proportion to their IMF quotas.
"Rich countries that are able to print their own money and provide guarantees should re-allocate their allocations to the most vulnerable countries. It boils down to the international creation of money," Mr Soros said.
"It would be a tremendous accomplishment for the G20, a practical achievement to move the world forward. The principle of doing it and endorsement from the G20 leaders would be the most one could expect [from the summit meeting]."
The G20 must create an emergency $50bn (£34.9bn) fund to reignite the flow of goods around the world, as international trade suffers the biggest collapse in the modern era, it has been warned.
By Edmund Conway, Rowena Mason and Angela Monaghan
Published: 5:38AM BST 01 Apr 2009
World trade is in "free fall" and will slump this year at the fastest rate since records began, according to a new report from the Organisation for Economic Co-operation and Development. Its report, which also forecast the biggest slide in global economic output since the Second World War and double-digit unemployment across the Western world, urged the world leaders congregating in London on Wednesday towards urgent action.
World Bank president Robert Zoellick said the leaders, including Gordon Brown and President Barack Obama, must sign up to an urgent plan to provide financing for exporters and traders in the developing world.
Related Articles
Live blog and map
City traders don scruffy trainers as protestors gather
G20 must commit to free trade, Diageo chief says
Britain will escape with shallower recession than rivals
G20 summit: US media praises Barack Obama's performance - but Gordon Brown is just a bit player
G20 Summit: Barack Obama urges leaders to look to the futureThe calls came amid growing tension surrounding the G20 summit, as French President Nicolas Sarkozy threatened to walk out unless his proposals for a reconsideration of global capitalism were considered and fears grew that the leaders would be unable to agree on a common solution for the economic crisis. UK benchmark share prices leapt 4.3pc despite the bad news, taking back the losses they incurred on Monday.
The OECD predicted that world trade will shrink by 13.2pc in 2009. The forecast is worse than those from the World Trade Organisation and World Bank and indicates a faster and more widespread implosion of imports and exports than in any single year during the 1930s.
Expressing exasperation, the OECD's chief economist Klaus Schmidt-Hebbel said: "The collapse of world trade growth cannot be explained by past relationships."
The report said: "Even when global credit conditions are taken into account by means of a proxy it remains difficult to explain the collapse in trade."
However, given that many economists blame the collapse in world trade during the 1930s for intensifying and perpetuating the Great Depression, the forecast and what it augurs is likely to climb towards the top of the G20 agenda. Speaking in London on Tuesday, Mr Zoellick said world leaders must help trade by offering credit to developing world exporters and stopping isolationist economic policies as a "first step" to prevent a social and humanitarian crisis.
"We now estimate that an additional 200,000 to 400,000 babies will die this year because of the drop in growth," he said. "In London, Washington, and Paris people talk of bonuses or no bonuses. In parts of Africa, South Asia and Latin America, the struggle is for food or no food."
He also lashed out at countries including the UK for indulging in "creeping protectionism", with 17 out of the 20 members of the G20 having already enacted protectionist measures.
In the bleakest set of forecasts in its history, the OECD predicted that the world economy would contract by 2¾pc this year. Although the UK will not suffer the worst recession, thanks largely to the fall in the pound and the Bank of England's decision to cut interest rates sharply, economic output will nevertheless contract by 3.7pc this year and 0.2pc cent in 2010. This represents the biggest fall since the Second World War, but is smaller than those experienced by other economies, with Japan shrinking by 6.6pc, Germany by 5.3pc and Italy by 4.3pc in 2009.
The forecasts were met with derision by Italian Prime Minister Silvio Berlusconi, who said: "First they did not see this coming, now they give new forecasts every other day. Shut up!"
The OECD said that although the UK is hamstrung by the size of its government deficit, "if economic circumstances deteriorate significantly more than projected, further fiscal measures would be warranted. However, any additional fiscal stimulus should be accompanied by a stronger and more credible commitment to a robust fiscal consolidation once the recovery takes hold".
George Soros said the success of the G20 meeting was "hovering on a knife edge between success and failure" and would depend on a pledge to increase the global money supply to help poor countries.
In a speech at the London School of Economics, the billionaire investor said the G20 should create about $250bn of the International Monetary Fund's Special Drawing Rates – international reserve assets which can be exchanged for major currencies – to make an impact. IMF member countries are allocated SDRs in proportion to their IMF quotas.
"Rich countries that are able to print their own money and provide guarantees should re-allocate their allocations to the most vulnerable countries. It boils down to the international creation of money," Mr Soros said.
"It would be a tremendous accomplishment for the G20, a practical achievement to move the world forward. The principle of doing it and endorsement from the G20 leaders would be the most one could expect [from the summit meeting]."