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UN agency warns of policy-induced global recession worse than 2007 financial crisis
The UN Conference on Trade and Development (UNCTAD) on Monday urged advanced economies to change course in their monetary and fiscal policies to avert a global recession worse than the global financial crisis of 2007 to 2009.
Excessive monetary tightening and inadequate financial support threatens to leave developing countries exposed to cascading crises of debt, health, and climate, UNCTAD warned in its annual report on trade and development.
“We are in a world of cascading and interconnected crises: climate change, COVID-19 and the war in Ukraine,” said Rebeca Grynspan, UNCTAD Secretary-General at a press conference in Geneva. “As the Secretary-General of the UN said, we are in a perfect storm. It is a difficult moment, no doubt, for all of us, but also for policymakers, because choices matter.”
Relying on higher interest rates to bring down prices without generating a recession is an imprudent gamble, the UNCTAD report warned. Central banks’ decisions to increase rates impact emerging economies with high levels of private and public debt, it also noted. Fiscal tightening in developed economies, combined with the COVID-19 pandemic and the war in Ukraine have already turned a global slowdown into a downturn.
“The synchronized slowdown is hitting all regions but is ringing alarm bells for developing countries. Our calculations show that the average growth rate in developing countries will drop below three per cent, as it did in the last decade of the 1980s,” she said.
Alarming levels of debt distress and under-investment
In addition, “some 90 developing countries have seen their currencies weaken against the dollar this year. And over a third of them have seen that by more than a ten per cent devaluation.”
UNCTAD expects the world economy to grow 2.5 per cent in 2022, and to decelerate further to 2.2 per cent in 2023. That will leave real GDP still below its pre-pandemic trend and generate a cumulative shortfall of more than $17 trillion, close to 20 per cent of the world’s income. This is insufficient for sustainable development, UNCTAD insisted, further squeezing public and private finances and damaging employment prospects.
Sustainable recommendations
UNCTAD urged a course correction in favour of policy measures that directly target price spikes in energy, food, and other vital sectors.
“We need to prioritize progress on a multilateral legal framework for handling debt restructuring, including all official and private creditors. And we also recommend a program of reforms in developing economies to boost productive investment and constrain capital moving to exploit tax loopholes,” added Ms. Grynspan.
Echoing that message, Richard Kozul-Wright, head of the team in charge of the report insisted that the global economy “is not yet in a recession. It's heading towards one and there are downside risks that could push it into one, depending on how policymakers, particularly in the advanced economies, respond to the current situation. So, I think it’s really (worth) watching what policymakers are going to do over the course of the next four to six months.”
UNCTAD provides economic and trade analysis, facilitates consensus-building and offers technical assistance to help developing countries use trade, investment, finance and technology for inclusive and sustainable development.
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