While the global economy will bounce back with growth of 5.3% in 2021, the fastest in nearly 50 years, the rebound is highly uneven along regional, sectoral and income lines, according to UNCTAD’s Trade and Development Report 2021.
The recovery, however, is uneven across geographical, income and sectoral lines. Within advanced economies, the rentier class has experienced an explosion in wealth, while low-earners struggle.
Constraints on fiscal space, lack of monetary autonomy and access to vaccines are holding many developing economies back, widening the gulf with advanced economies and threatening to usher in another lost decade.
“These widening gaps, both domestic and international, are a reminder that underlying conditions, if left in place, will make resilience and growth luxuries enjoyed by fewer and fewer privileged people,” said Rebeca Grynspan, the secretary-general of UNCTAD.
“Without bolder policies that reflect reinvigorated multilateralism, the post-pandemic recovery will lack equity, and fail to meet the challenges of our time.”
UNCTAD’s proposals, outlined in more detail below, are drawn from the lessons of the pandemic, and include concerted debt relief and even cancellation in some cases; a reassessment of the role of fiscal policy in the global economy; greater policy coordination across systemically important economies; and bold support for developing countries in vaccine deployment.
In 2022, UNCTAD expects global growth to slow to 3.6%, leaving world income still 3.7% below where its pre-pandemic trend would have put it; an expected cumulative income loss of about $13 trillion in 2020-22. Timid policy or, even worse, backsliding, could pull growth down further.
Across the world, but particularly in developing regions, the damage from the Covid-19 crisis has been greater than that from the global financial crisis (GFC), most notably in Africa and South Asia.
Even barring significant setbacks, global output will only resume its 2016-19 trend by 2030. This fact conceals the deeper problem that the pre-Covid-19 income growth trend was itself unsatisfactory; average annual global growth in the decade after the GFC was the slowest since 1945.
Temporary price hikes caused by unsynchronized supply and demand side pressures may become excuses to reverse policies required to sustain recovery in advanced economies. Despite a decade of massive monetary injections from leading central banks, inflation targets have been missed and, even with the current strong recovery in advanced economies, there is no sign of a sustained rise in prices.
After decades of a declining wage share, real wages in advanced countries need to rise well above productivity for a long time before a better balance between wages and profits is achieved again. That said, UNCTAD believes the rise in food prices could pose a serious threat to vulnerable populations in the South, already financially weakened by the health crisis.
Globally, international trade in goods and services has recovered, after the overall flow dropped by 5.6% in 2020. The downturn proved less severe than had been anticipated, as month-on-month merchandise trade flows in the latter part of 2020 rebounded almost as strongly as they had fallen earlier.
The report’s modelling projections point to real growth of global trade in goods and services of 9.5% in 2021. Still, the recovery has been extremely uneven, and scars will continue to weigh on the trade performance in the years ahead.
In 2021, the positive trajectory of commodity prices from the trough observed in the second quarter of 2020 has continued. The aggregate commodity index registered an increase of 25% from December 2020 to May 2021, mainly due to the price of fuels, which surged by 35%, while that of minerals, ores and metals registered an increase of 13%.
“The pandemic has created an opportunity to rethink the core principles of international economic governance, a chance that was missed after the global financial crisis,” said Richard Kozul-Wright, director of UNCTAD’s globalization and development strategies division.
“In less than a year, wide-ranging policy initiatives in the United States have begun to effect concrete change in the case of infrastructure spending and expanded social protection, financed through more progressive taxation. The next logical step is to take this approach to the multilateral level.” – TradeArabia News Service