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Global economy to contract by over 4% in 2020: UNCTAD

Sep '20
Pic: Shutterstock
Pic: Shutterstock
The global economy will contract this year by over 4 per cent, with an estimated swing of 6.8 percentage points leaving a shortfall in global output by year’s end of over $6 trillion (in current US dollars), according to the Trade and Development Report 2020 released recently by the United Nations Conference on Trade and Development (UNCTAD).

If last year’s economic forecasts had materialised, the world would now be enjoying a pick-up in global growth, led by the large emerging economies, the report says.

And as domestic activity contracts sharply almost everywhere, so goes the international economy; trade will shrink by around one-fifth this year, foreign direct investment by up to 40 per cent and remittances will drop by over $100 billion, it says.

In the face of a deep global recession amid a still unchecked pandemic, the world needs a global recovery plan that can return even the most vulnerable countries to a stronger position than they were in before COVID-19, it says.

The key to success will be tackling a series of pre-existing conditions that were threatening the health of the global economy even before the pandemic hit. These include hyper-inequality, unsustainable levels of debt, weak investment, wage stagnation in the developed world and insufficient formal sector jobs in the developing world, it says.

Drawing lessons from the global financial crisis, the report argues that recovery and reform, at both the national and international levels, must go hand in hand if building back better is to move beyond sloganeering and become the lodestar of a more resilient future.

It shows that a big public investment push with effective international support and coordination could all but double the global growth rate over the next decade along with improved debt sustainability and a fairer distribution of income, according to an UNCTAD press release.

The biggest absolute falls in output will be in the developed world, with some countries set to register a double-digit decline over the year. But the greatest economic and social damage will be in the developing world, where levels of informality are high, commodities and tourism major sources of foreign exchange, and fiscal space has been squeezed under a mountain of debt, it says.

Between 90 million and 120 million people will be pushed into extreme poverty in the developing world, with close to 300 million facing food insecurity.

Latin America is likely to be particularly hard hit with a drop in output this year of 7.6 per cent, with sharp declines, possibly double digit, in some of the largest economies, notably Argentina and Mexico, but the small Caribbean economies are also facing unprecedented economic devastation.

The contrast with East Asia, where growth will remain in positive territory, albeit much lower than in 2019—China, for example, is expected to grow at 1.3 per cent—is stark.

All eyes are now on 2021. Even if economic activity continues to bounce back and advanced country governments continue with the current mix of fiscal and monetary measures, employment will not fully recover, many countries will remain in debt distress and income gaps will widen, it says.

A ‘lost decade’ looms, foreclosing on any hope of delivering the 2030 Agenda for Sustainable Development. Model simulations indicate that an early return of austerity would set off a vicious circle of low employment generation, wage stagnation, slower economic growth and higher pressure on government budgets.

In particular, a return to pre-pandemic austerity will reduce annual global growth by 1 percentage point and increase the global unemployment rate by 2 percentage points until 2030. Labour income shares will also decrease, by more than 3 percentage points globally, implying a transfer of income from workers to profit earners of approximately $40 trillion by 2030, the UNCTAD report adds.

Fibre2Fashion News Desk (DS)

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