The world is in danger of heading towards a “lost decade”, with several countries facing the real possibility of a double-dip recession if global leaders fail to agree on a global recovery plan, the United Nations has warned.
In its annual trade and development report, the UN Conference on Trade and Development (UNCTAD) said a repeat of austerity measures put in place after the 2008 global financial crisis would stifle recovery and set off a vicious circle of low employment generation, wage stagnation, and slower economic growth.
“We can’t vaccinate our way out of this crisis,” Richard Kozul-Wright, UNCTAD’s director of the division on globalization and development strategies, told journalists at a press briefing on Monday, stressing that economic policies - not medical breakthroughs - will be key to addressing problems of inequality, and indebtedness.
Why it matters: The global economy is expected to shrink by 4.3 per cent in 2020 due to the coronavirus-triggered downturn, leaving output by year’s end over $6 trillion short of what economists had predicted before the crisis.
In efforts to kickstart their economies, governments worldwide have unveiled unprecedented stimulus packages amounting to around $13 trillion for G20 countries.
But even if these measures help mitigate declines and economic activity continues to bounce back, a recovery is likely to be uneven and short-lived. Employment will not fully recover and any countries will remain in debt distress and income gaps will widen, according to the report.
While the biggest falls in output will be in the developed world, the greatest economic damage will be felt in developing countries. Between 90 million and 120 million people will be pushed into extreme poverty, with close to 300 million facing food insecurity.
Without a radical shift in policy and effective coordination at the international level, a return to austerity will become “the winning policy mindset” with governments resorting to wage cuts and fiscal prudence as a stopgap in dealing with the crisis.
“Fiscal austerity and corporate cost-cutting would do nothing but worsen the globe’s pre-existing conditions,” said Kozul-Wright.
“New rules on international trade and investment, and new privileges for owners of intellectual property and vital technologies would further constrict the policy space developing countries need for sustainable growth,” he added.
Avoiding ‘a lost decade’. Hyper-inequality, unsustainable levels of debt, weak investment, wage stagnation: the global economy is still grappling with a host of problems that existed even before the pandemic hit. This is further compounded by geopolitical tensions including trade disputes, fights over key technologies, and climate change. The report says tackling these issues will be key to a global economic recovery.
“Building a better world require smart actions now. The lives of future generations, indeed of the planet itself, will depend on the choices we all take over the coming months.”
Just keep on spending. The report argues that an inclusive and sustained recovery will only happen if governments in the advanced countries not only keep spending for as long as it takes for their own private sector to regain the confidence to spend themselves, but also extend financial support to help developing countries tackle the underlying stresses and fractures that are holding back their recovery and growth prospects.
A global recovery plan. The world needs “a bold and comprehensive” plan built focused on job creation and higher wages and to help even the most vulnerable countries return to growth. It needs to be supported by a big public investment push into cleaner energy, environmental protection, sustainable transport systems and the care economy.
Rethinking multilateralism. Covid-19 has helped promote greater levels of international cooperation. However it has also cause a global surge in protectionist measures, undermining the spirit of multilateralism.
“Whether or not the current crisis pushes that system closer to the brink of implosion or begins a new chapter of international cooperation rests on changing political currents in the leading economic powers.”
The report, coinciding with the UN general assembly, calls for a fresh approach to multilateralism, including promoting a collective vision that can help establish new rules, principles and policies in line with the Agenda 2030 and building a more democratic (and less hegemonic) model of global governance.
It points to actions that the multilateral system can take now in support of recovering better, including expanded use of Special Drawing Rights to boost global liquidity and completion of the Doha Development Agenda to recover trust in the international trading system.