The United Nations cautions that the global economy is at risk of a prolonged slowdown unless there are reforms in the global financial system, improved policies to address issues such as inflation, inequality, sovereign debt, and stronger regulations in the market.
According to a report released by the U.N. Conference on Trade and Development (UNCTAD) on Wednesday, economic growth is expected to come to a halt, dropping to 2.4% in 2023 from the 3% recorded in 2022 across the majority of global regions. Additionally, there appears to be little hope for a rebound in 2024.
The UN’s trade body, headquartered in Geneva, has emphasized that the global economy is currently at a critical crossroads. Some economies are experiencing growth and expansion, while others are facing challenges and slowdowns. Rebeca Grynspan, the Secretary-General of UNCTAD, underscores the importance of learning from past policy mistakes.
She emphasized the necessity for a well-rounded blend of fiscal, monetary, and supply-side measures to attain financial stability, foster productive investment, and facilitate the creation of higher-quality jobs.
Additionally, she stressed the importance of regulatory frameworks addressing the growing imbalances within the international trade and financial system. UNCTAD’s analysis points out that the global economy’s recovery from the pandemic is characterized by notable disparities, raising concerns about the appropriate course of action in the absence of coordinated policies.
The report highlighted that in the United States, despite the upward trajectory of interest rates, the economy has been pleasantly surprised by achieving a managed deceleration. This smooth transition can be credited to strong consumer spending, the deliberate avoidance of fiscal belt-tightening measures, and proactive monetary interventions earlier in the year.
Nonetheless, there are lingering worries about investments, largely stemming from the sustained high interest rates, as underscored in the report.
Following the shockwaves of the COVID-19 pandemic, the profits of the top 2,000 multinational corporations surged, while the global share of labor income continued its decline. In stark contrast, Europe stands on the precipice of a potential recession, grappling with the swift tightening of monetary policies and formidable economic headwinds.
Major economies are decelerating, with Germany already entrenched in an economic contraction. The continent faces the challenge of stagnant or decreasing real wages, exacerbated by fiscal austerity measures, which are weighing down on economic growth, as noted by UNCTAD.
China, on the other hand, displays indications of recovery from the previous year, though it contends with subdued domestic consumer demand and private investment, as highlighted in the report. Nevertheless, China possesses more fiscal policy flexibility compared to other major economies, presenting an opportunity to address these challenges, as emphasized by the UN agency.
One of the paramount concerns revolves around the persistent issue of economic inequality, particularly evident in developing nations disproportionately affected by the tightening monetary policies of more advanced economies.
This widening wealth gap poses a significant threat to the fragile economic recovery and hinders progress towards achieving the Sustainable Development Goals (SDGs). The confluence of rising interest rates, depreciating currencies, and sluggish export growth has created substantial fiscal constraints for essential needs, effectively transforming the escalating burden of debt servicing into an ongoing development crisis, a matter that UNCTAD has issued a stern warning about.