The global economy is forecast to grow by a higher-than-expected 4.7 per cent this year, thanks in part to a stronger recovery in the US, according to a report by the United Nations Conference on Trade and Development (UNCTAD).
The UN body had previously estimated a 4.3 per cent growth for 2021. But even with a better-than-expected performance, this will still leave the global economy more than $10 trillion short of where it could have been by the end of 2021 if a pandemic had not occurred, its economists said.
“For the world economy, UNCTAD projects that GDP will recover this year, slightly above what it was before the crisis. But still, if we consider what the world economy was growing before the pandemic, there's going to be a five per cent gap in 2021,” Nelson Barbosa, professor of economics at University of Brasilia told journalists.
“This means that the crisis is still very serious, and the recovery is not over. We still need relief policies in many areas of the world and we also need the reconstruction policies,” he added.
A recovery, but not for everyone. Describing 2020 as an “annus horribilis”, UNCTAD conceded that things could have been worse had central banks not taken preemptive measures to avoid a financial meltdown.
Relief policy measures in advanced countries, a bounce-back in capital flows and commodity prices, and the unprecedented progress in developing and distributing vaccines have all helped to avoid an even more vicious deflationary spiral taking hold.
The positive surprises have been Brazil, Turkey and the United States, where larger than expected relief measures and rising commodity and asset prices have helped boost growth.
However, the recovery has been uneven, with developing countries bearing the brunt. “Developing economies do not have enough policy space, fiscal, monetary or exchange-rate resources, to take the appropriate actions to protect their population and at the same time stimulate their economies to recover,” Barbosa said.
With many parts of the world still struggling to contain the spread of Covid-19 and to address the economic fall-out from the pandemic, more help is needed to get vulnerable countries back on track and stem rising inequalities, he added.
Vaccines and solidarity. The report calls for increased international cooperation, particularly on the part of rich nations in helping poorer countries vaccinate their populations. “Developed countries have cornered supply through advanced purchasing agreements, while getting vaccines to developing countries has been treated more as a matter of charity than global public policy,” the report states.
UNCTAD also condemns a move by richer members of the World Trade Organization (WTO) earlier this month to block a proposal backed by 80 developing countries to waive vaccine patent rights, saying it “signalled a priority of profits over people”.
Barbosa adds: “There is production capability in many countries to accelerate the production of vaccines, provided some agreement is reached on intellectual properties or even if some extraordinary or temporary agreement, makes it possible to produce vaccines faster.”
Debt relief for vulnerable countries. Rising debt levels, exacerbated by the crisis, has been another source of stress for many countries, with five governments already defaulting on their sovereign debt last year.
In October, the group of G20 nations representing the world’s biggest economies agreed to extend their Debt Service Suspension Initiative (DSSI) to help the most vulnerable countries cope with the fallout from the pandemic for another six months.
The initiative allows debt suspension for up to 73 of the poorest countries in the world. However, the scheme only relieves countries of $12bn out of the $42bn in debt repayments the 73 eligible countries were due to make last year, with the majority owed to private actors and multilateral banks.
Their participation is voluntary, with civil society organisations including Oxfam, Christian Aid and the Jubilee Debt Campaign, making repeated calls last year for the scheme to be made compulsory for all creditors - and for 2020 debt repayments to be cancelled altogether.
“[The DSSI] certainly needs to be extended to include private creditors but even if that were to happen, that wouldn’t be sufficient really to address the huge burden that many developing countries are experiencing in terms of debt servicing and the squeezing of fiscal space that comes as a consequence of that,” said Richard Kozul-Wright, director of UNCTAD’s division on globalization and development strategies.
Other measures, including the US’ recent endorsement of plans by the G20 to provide more financial support to low-income countries by boosting the IMF’s emergency reserves “are a step in the right direction”, Kozul-Wright said, however “a significant increase in debt relief” is needed.
He urged “a concerted effort from the international community” to help ensure a global recovery from the pandemic.
UNCTAD’s report, entitled “Out of the frying pan ...Into the fire”, concludes that tackling rising inequality, mounting debt distress, detached financial markets and growing market power of large corporations reluctant to reinvest their profits in building productive capacities “will require more than a one-shot economic stimulus”.
It calls for a more wholesale rewriting of the rules of the economic game if the mistakes of the 2009 financial crisis are not to be repeated and the goal of an inclusive, sustainable and resilient global economy realised by 2030.