Declines suggest global economic downturn has begun Douglas O. Walker Professor of Economics Robertson School of Government Regent University Virginia-Pilot—July 10, 2005

The global economy, at first glance, appears strong.  The 4.0 percent increase in world economic output in 2004 represents a gain of more than one percent over 2003. A nine percent increase in world trade, improved employment in economically advanced countries, and a subdued inflation rate have contributed to recent gains.

As expected, the American economy contributed significantly to this increase. American economic output increased by four percent in 2004, about a percentage point higher than in 2003 and almost two points higher than 2002. Elsewhere, Europe’s major economies, such as France and Germany, as well as the major Asian economies, have enjoyed significant increases. And, surprisingly, the economies of Russia, Latin America, and Africa have made economic strides.

But based upon the latest economic forecasts before the United Nations, the current upturn in the global economy is almost an illusion. The present global recovery began in 2001 after a worldwide recession, and will likely continue, but at a decelerating rate, becoming one of the shortest and weakest economic recoveries since World War II. Assessments at the UN now project a loss of economic momentum in 2005 of approximately a half percentage point throughout the world, which portends another widespread slowdown in the global economy. In fact, these assessments may understate the severity of the slowdown.

Significantly, the forecasts fit a long-term trend. Since the 1960s the tempo of global economic growth has declined in each decade. Gross world product – a measure of all output produced by all people in all countries in a year – increased by an average of 5.3 percent in the 1960s, three percent in the 1970s, three percent in the 1980s, and 2.2 percent in the 1990s. Estimates and forecasts to date for the present decade are even lower.

Ironically, despite accelerating technological advances, higher rates of capital formation, and efforts by some countries to reverse the decline, the gradual economic decline has continued unabated.

Causes of the slowdown include long-standing and large trade and budget deficits, especially in the United States, unstable and misaligned exchange rates, and periodic shocks on the international financial and commodity markets. But policymakers focus less on these long-term systemic problems and more on such short-term concerns as the collapse of the dollar, the high price of oil, and the prospect of another global recession. The short-term issues merely illustrate the long-term problem – a weakening global economy.

Unfortunately, international monetary reform – a key part of the solution to the long-term decline – ranks last on the list of subjects that major countries are willing to address. Unless and until the major countries address international monetary reform, the global economic decline will continue, creating more worldwide instability and uncertainty for everyone, including Americans.

So, though apparently robust, the international economic system is slowly disintegrating.  

About the Author:
Formerly a senior economist at the United Nations (UN) Secretariat in New York, Dr. Walker has served as Secretary of committees on world economic trends and policies, speechwriter to the Under-Secretary-General for Economic and Social Affairs, editor of Briefing Notes on the World Economic and Social Situation for the UN Secretary-General, and advisor on economic affairs to various African and Latin American governments. Dr. Walker has also served as a professor of economics at The City University of New York and other universities.  He holds a Ph.D. from the University of Southern California