The world economy is expected to bounce back this year with an estimated growth of 5.3 per cent, the fastest in nearly five decades, said the UN Conference on Trade and Development (UNCTAD).
In its latest report released on September 15, the UNCTAD said that the rebound was highly uneven along regional, sectoral and income lines. The UN Agency said that global growth is expected to slow to 3.6 per cent during 2022, which would leave the world income levels trailing some 3.7 per cent below the pre-pandemic trend line.
In the report, the UNCTAD warned that the growth deceleration could be bigger than expected, if policy makers lose their nerve or answer what it regards as misguided calls for a return to deregulation and austerity.
DIFFERENCES IN GROWTH
The UNCTAD said that several developed countries saw an end to public spending constraints. It said that international rules and practices have locked developing countries into pre-pandemic responses and a semi-permanent state of economic stress, The report stated that several countries in the South was hit much harder than during the global financial crisis. With a heavy debt burden, they also have less room for manoeuvring their way out through public spending.
It mentioned that lack of monetary autonomy and access to vaccines are also holding many developing economies back, widening the gulf with advanced economies and threatening to usher in another “lost decade” .
These widening gaps, both domestic and international, are a reminder that underlying conditions, if left in place, will make resilience and growth luxuries enjoyed by fewer and fewer privileged people, said UNCTAD Secretary General Rebeca Grynspan. “Without bolder policies that reflect reinvigorated multilateralism, the post-pandemic recovery will lack equity, and fail to meet the challenges of our time,” she said.
The report comprises several proposals drawn from the lessons of the Covid 19 pandemic. They include concerted debt relief and even cancellation in some cases, reassessment of fiscal policy, greater policy coordination and strong support for developing countries in vaccine deployment.
The report maintained that even without significant setbacks, global output will only resume its 2016-19 trend by 2030. But even before COVID-19, the income growth trend was unsatisfactory, says UNCTAD. Average annual global growth in the decade after the global financial crisis was the slowest since 1945.
Despite a decade of massive monetary injections from leading central banks, since the 2008-9 crash, inflation targets have been missed. Even with the current strong recovery in advanced economies, there is no sign of a sustained rise in prices. The UNCTD stated that real wages in advanced countries need to rise well above productivity for a long time before a better balance between wages and profits is achieved again.
FOOD PRICES AND GLOBAL TRADE
Despite current trends on inflation, the UNCTAD thinks that the rise in food prices could pose a serious threat to vulnerable populations in the South, which is already financially weakened by the health crisis. Meanwhile, the UNCTAD said that international trade in goods and services recovered globally, after a drop of 5.6 per cent in 2020. The downturn proved less severe than had been anticipated, as trade flows in the latter part of 2020 rebounded almost as strongly as they had fallen earlier.
The report’s modelling projections point to real growth of global trade in goods and services of 9.5 per cent in 2021. However, the consequences of the crisis would continue to weigh on the trade performance in the coming years, the report said.
UNCTAD Director of globalization and development strategies division Richard Kozul-Wright said “the pandemic has created an opportunity to rethink the core principles of international economic governance, a chance that was missed after the global financial crisis.”
“In less than a year, wide-ranging US policy initiatives have begun to effect concrete change in the case of infrastructure spending and expanded social protection, financed through more progressive taxation. The next logical step is to take this approach to the multilateral level,” he said.
The report also highlights a “possibility of a renewal of multilateralism”, pointing to the United States support of a new special drawing rights (SDR) allocation, global minimum corporate taxation, and a waiver of vaccine related intellectual property rights. UNCTAD, however, noted that these proposals needed much stronger backing from other advanced economies and the inclusion of developing country voices if the world is to tackle the excesses of hyper globalisation and the deepening environmental crisis in a timely manner.