The global economy will bounce back in 2021 thanks to the continuation of radical policy interventions which began in 2020 and a successful (though still incomplete) vaccine roll-out in advanced economies according to United Nations Conference on Trade and Development (UNCTAD).
Global growth will hit 5.3%, its fastest rate in nearly five decades, according to the UNCTAD’s Trade and Development Report 2021: “FROM RECOVERY TO RESILIENCE: HANGING TOGETHER OR SWINGING SEPARATELY?”.
During the launching event of the report on Wednesday, Mahmoud Al Khafif, Senior Economic Affairs Officer with UNCTAD, presented the main points of the report mentioning that the report warns that 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.
Al Khafif said 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.
He mentioned that the report said that 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,” according to UNCTAD.
The report mentioned that globally, international trade in goods and services has recovered, after the overall flow dropped by 5.6% in 2020. It explained that 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%,” according to the report.
The report showed that over the coming years, pressures on external debt sustainability will persist because many developing countries face a wall of upcoming sovereign debt repayments in international bond markets.
It said that together, developing countries (excluding China) face total repayments on sovereign bonds already issued to a value of $936bn until 2030, the year earmarked for achievement of the Sustainable Development Goals.
UNCTAD calls for concerted debt relief and in some cases outright cancellation in order to reduce the debt overhang in developing countries and avoid another lost decade for development.
The report mentioned that the pandemic has seen an emergent consensus around the need for significant public sector intervention, but there is less agreement on what this will involve beyond countercyclical measures. There is a risk that expansionary fiscal measures will be regarded only as fire-fighting tools, while, in fact, they are critical instruments of long-term development.
UNCTAD calls also for the political space created by the pandemic to be used to re-assess the role of fiscal policy in the global economy, as well as the practices which have widened inequalities.
The report showed out that delivering the necessary support to build back better will require much greater policy coordination across systemically important economies; reforms to the international economic architecture that were promised after the 2008-09 crisis but were quickly abandoned in the face of resistance from the rentier class.
“The reluctance of other advanced economies to follow the US lead on the vaccine waiver is not only a worrying sign of disjointed obduracy in the North; it is a particularly costly one for already financially constrained economies. On one recent estimate, the cumulative cost of delayed vaccination will, by 2025, amount to $2.3 trillion with the developing world shouldering the bulk of that cost,” the report said,
UNCTAD stressed that renewed international support is needed for developing countries, many of which face a spiraling health crisis, even as they struggle with a growing burden of debt and face the prospects of a lost decade.