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Trade and Development Report 2001

Global Trends and Prospects, Financial Architecture

image of Trade and Development Report 2001

The world economy is staring into a dangerous precipice; many see uncomfortable parallels with the period between the two world wars. Excessive financial liberalization has created a world where global private financial flows have broken free from multilateral supervision and regulation. Systemic instability and recurrent crises have followed and so far international policy makers have failed to find effective answers. This disturbing scenario provides the backdrop to the Trade and Development Report 2001. Part one of the report sets out to answer some key questions about the health of the world economy while part two takes a hard look at efforts to reform the international financial architecture.

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The world economy: Performance and prospects

Prospects for the world economy dimmed towards the end of 2000. After an unprecedented period of expansion, growth in the United States decelerated sharply in the third and fourth quarters of the year in response, inter alia, to a series of interest rate hikes, falling equity prices and rising oil prices. Lower investment spending in the last quarter snuffed out growth altogether at the beginning of 2001, raising concerns that a harder landing than expected might send recessionary shockwaves throughout the world economy. The fact that the slowdown, with its potential consequences, has caught many observers by surprise is a further confirmation that policy makers everywhere are ill-prepared to cope with the changes brought about by the increasing integration of the world economy.

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