Not only has the “Great Recession” led to a “Great Slowdown” in developing countries, but also their longer-term growth prospects are clouded by global structural imbalances and fragilities that culminated in the current crisis. Even if the crisis in the North is fully resolved, developing countries are likely to encounter a much less favourable international economic environment in the coming years than they did before the onset of the Great Recession, including weak and unstable growth in major advanced economies, a significant slowdown in China, higher US interest rates, stronger dollar and weaker commodity prices. Indeed, they may even face less favourable conditions than those prevailing since the onset of the crisis, notably with respect to interest rates, capital flows and commodity prices. All these imply that there will be no more Southern tail winds. Consequently, in order to repeat the spectacular growth they had enjoyed in the run-up to the crisis, developing countries need to improve their own fundamentals, rebalance domestic and external sources of growth and reduce dependence on foreign markets and capital. This requires, inter alia, abandoning the Washington Consensus in practice, not just in rhetoric, and seeking strategic rather than full integration into the global economy.
Published by South Centre- Research Paper 48, June 2013