The UN Conference on Trade and Development (UNCTAD) reported that world economic growth is expected to decelerate from three per cent last year to 2.4 per cent through 2023, with limited signs of a rebound in 2024.
These figures underscore the urgent need for reform of the global financial system, more practical policies to combat inflation, inequality, and sovereign debt, as well as enhanced oversight of critical markets.
Avoid past mistakes
Rebeca Grynspan, UNCTAD Secretary-General, emphasized the need to avoid past policy errors.
“We need a balanced policy mix of fiscal, monetary and supply-side measures to achieve financial sustainability, boost productive investment and create better jobs. Regulation needs to address the deepening asymmetries of the international trading and financial system,” she said.
US ‘soft landing’
According to UNCTAD, the global economy’s recovery from the pandemic is marked by significant divergence, prompting concerns about the right path forward in the absence of policy coordination.
In the United States, the report said, despite rising interest rates, the economy has defied pessimistic predictions by experiencing a controlled economic slowdown.
This “soft landing” can be attributed to robust consumer spending, the avoidance of fiscal austerity measures, and active monetary intervention earlier in the year.
At the same time, lingering investment concerns remain, particularly due to extended high interest rates, the report added.
After the COVID-19 shock, profits of top 2,000 multinational enterprises further increased while the global labour income share continued to shrink.
Mixed picture elsewhere
Conversely, Europe teeters on the brink of a potential recession, grappling with a rapid tightening of monetary policy and strong economic headwinds. Major economies are slowing down and Germany is already in a state of contraction.
Stagnant or falling real wages across the continent, compounded by fiscal austerity, are dragging down growth, UNCTAD said.
China, while showing signs of recovery from last year, faces weak domestic consumer demand and private investment, the report noted.
However, it has more fiscal policy space compared to other major economies, which could be leveraged to address these challenges, the UN agency added.
One of the key concerns is the persistence of economic inequality, especially in developing countries disproportionately affected by monetary tightening in more advanced economies.
This widening wealth gap poses a threat to the fragile economic recovery and reaching the Sustainable Development Goals (SDGs).
Unfolding development crisis
Debt burdens also loom large for many developing nations.
Rising interest rates, weakening currencies and sluggish export growth have combined to squeeze the fiscal space for essential needs, transforming the growing debt service burden into an unfolding development crisis, UNCTAD warned.