The United Nations warned Wednesday that the world economy is headed for a protracted slowdown without reform of the global financial architecture, better policies to combat inflation, inequality and sovereign debt and stronger market regulation. Photo by John Angelillo/UPI | License Photo
The United Nations warned Wednesday that the world economy is headed for a protracted slowdown without reform of the global financial architecture, better policies to combat inflation, inequality and sovereign debt and stronger market regulation.
Economic growth is forecast to stall, slowing to 2.4% in 2023, from 3% in 2022, across most global regions with little prospect of a rebound in 2024, the U.N. Conference on Trade and Development said. Advertisement
However, diverging fortunes place the post-COVID-19 global economy at a crossroads, where the growth gap between resilient economies in Asia, Latin America and the United States — where a “soft-landing” is anticipated — is widening inequalities, hurting market competition and ramping up the debt burden, UNCTAD said in its 2023 Trade and Development report.
The permanent intergovernmental panel warns of a “lost decade” of growth unless there is an urgent shift in policy direction, including by leading central banks, and the carry-through of institutional reforms promised during the COVID-19 crisis. Advertisement
“To safeguard the world economy from future systemic crises, we must avoid the policy mistakes of the past and embrace a positive reform agenda,” said UNCTAD Secretary-General Rebeca Grynspan.
“We need a balanced policy mix of fiscal, monetary and supply-side measures to achieve financial sustainability, boost productive investment and create better jobs. Regulation needs to address the deepening asymmetries of the international trading and financial system.”
Countries that have fared the best include Brazil, Mexico, Russia, India, Japan and China which, while grappling with weak domestic demand and private investment after re-opening from three years of COVID-19 restrictions and lockdowns, enjoys greater fiscal headroom to cope with its problems than most of its rivals.
Recession in Europe looms, UNCTAD said, as the bloc contends with a rapid rise in interest rates and flat or falling real wages, exacerbated by fiscal austerity, dragging on growth with the big economies slowing down and German GDP growth already in the red.
On the other side of the Atlantic, the United States has bucked pessimistic predictions to deliver a measured economic slowdown with slowing inflation, buoyant consumer sentiment, continued government spending and intervention to head off a financial crisis in the first quarter threatened by bank failures, states the report Advertisement
However, worries remain about the impact of interest rates remaining high for an extended period on investment in the United States.
UNTAD said monetary policy tightening in advanced economies was among the economic impacts widening inequality, especially in developing countries, and threatening “a fragile economic recovery” and the goals of nations to meet the sustainable development goals.
In the developing world, debt remains a particular concern as surging interest rates, weakening currencies and sluggish export growth conspire to squeeze budgets for essential needs while the rising interest burden threatens a development crisis with nearly a third of frontier economies on the “precipice of debt distress.”
The solution, according to the U.N. body, is a more balanced policy mix of fiscal, monetary and supply-side measures and coordination between national and supranational authorities to manage inflation and ensure price stability.
Authorities also need to create business-friendly climates to encourage investment-led growth, reduce income disparities, boost real wages, and shore up social welfare safety nets. Central banks’ responsibilities should go beyond inflation targets to consider long-term economic sustainability.
Soaring debt required urgent multilateral solutions and a sovereign debt restructuring mechanism with meaningful reforms of the rules and practices of the international financial architecture to deliver fair and timely solutions for managing debt crises that do not hobble countries’ economies. Advertisement
Within that architecture, more transparent, regulated markets for a fairer global trade system were critical in the face of concentration in sectors, including farm commodities, since 2020, that has boosted the profits of top multinationals.
“Patterns of profiteering” in the food trading sector pointed to a need for more systemic financial oversight, said UNCTAD.
