We’re about to experience the fastest pace of economic growth the world has seen in half a century.
Global GDP is forecasted to recover from the crippling economic effects of the COVID-19 pandemic at 5.3 per cent in 2021, according to the latest report from the UN’s Conference on Trade and Development (UNCTAD).
For Australia in particular, GDP is expected to rise by 3.2 per cent in 2021.
But it’s not all good news. Global recovery will be decidedly uneven: in short, wealthy countries will get richer, while poorer countries will continue to struggle.
“So far, the world economy appears to be building back separately,” UNCTAD’s report stated.
“The recovery has to date been unbalanced reflecting fault lines that were present before the pandemic.”
The GDP growth of some regions and countries are racing ahead, while many developing countries are falling behind, UNCTAD found, with a “sharp divergence” in wealth and income inequality.
For most parts of the world, but especially developing countries, the COVID-19 pandemic has been more devastating than the Global Financial Crisis (GFC).
Global GDP growth is expected to slow to 3.6 per cent in 2022. This 3.6 per cent growth means we’ve missed out on 3.7 per cent growth according to the pre-pandemic trajectory we would have otherwise been on. The losses between 2020-2022 are estimated to amount to US$13 trillion ($17.72 trillion).
And even if the global economic recovery goes according to plan, GDP growth won’t get back to the 2016-19 trajectory until 2030.
“This fact conceals the deeper problem that the pre-COVID-19 income growth trend was itself unsatisfactory,” UNCTAD stated.
For UNCTAD secretary-general Rebeca Grynspan, these growth projections show that intervention is sorely needed.
“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,” Grynspan said.
“Without bolder policies that reflect reinvigorated multilateralism, the post-pandemic recovery will lack equity, and fail to meet the challenges of our time.”
How is UNCTAD proposing to fix this?
UNCTAD’s report proposes four key measures to address these problems.
1. Debt relief or even cancellation
During the pandemic, the external debt held by developing countries became more and more unsustainable. Rising interest rates would further exacerbate these problems.
“Many developing countries face a wall of upcoming sovereign debt repayments in international bond markets,” UNCTAD stated. All together, developing countries (minus China) are facing a total debt of US$936 billion.
“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.”
2. Reassess fiscal policy
Fiscal policy is the use of government spending and tax levels to influence the country’s economy.
The UNCTAD is concerned that “expansionary fiscal measures” – or higher spending levels intended to spur the economy – are being used as “fire-fighting tools” rather than measures for long-term growth.
“UNCTAD calls 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 that have widened inequalities.”
3. Greater coordination when it comes to policy
Building a better global economy is going to need much better policy coordination from the “systemically important” advanced economies, the UNCTAD said.
We’ll need to see “improved multilateral surveillance and coordination of economic policies in the major economies; stronger regulation and supervision of international capital flows”, ways to restructure debts in a fairer way, and more.
4. More support for developing countries in deploying vaccines
Delays in getting jabbed will cost the world; the cumulative cost of delayed vaccinations is estimated to come to US$2.3 trillion by 2025. And it’ll be the developing world that bears most of that cost, UNCTAD said.
“Renewed international support is needed for developing countries, many of which face a spiralling health crisis, even as they struggle with a growing burden of debt and face the prospects of a lost decade.”