Global economic growth will increase to 4.7 percent this year as widespread vaccine delivery is expected to assist economies in resuming regular operations, as per the United Nations report.
The United Nations Conference on Trade and Development (UNCTAD) has stated that this positive scenario is based on three assumptions and they are ‘increased vaccination and disease containment in advanced and middle-income countries, a quick transition from economic relief policies to recovery policies in the largest economies, and no global financial crash’.
Even in this optimistic scenario, the global economy will be still 5 percent below its pre-COVID-19 growth rate by the end of this year. According to the UN agency, the COVID-19 pandemic caused a loss of global output in 2020 and a destruction of income at an estimated $5.8 trillion. Even the most ambitious forecasts for growth recovery will not cover the income deficit for many years, it added.
The global health crisis stifled movement in most of the world’s major economies, halted foreign transport, affected industrial bases, and disrupted supply chains, plunging the global economy into a deep recession.
According to UNCTAD’s report released in February, global trade recovered in the fourth quarter of 2020, narrowing its overall decline for the year to 9 percent.
UNCTAD commented, “International trade dropped, quarter-on-quarter, by around 12 percent in the second quarter of 2020 but has had an immediate V-shaped recovery with variations across developing countries and regions.”
The lack of foreign exchange in many developing countries, which is needed to make debt and import payments, including for medical supplies, was exacerbated by a sharp drop in export earnings as a result of movement restrictions, supply chain disruptions, and commodity price collapses, according to the UN agency.
The report says, “Although monetary stimulus from central banks helped financial markets to bounce back quickly from the lows of March/April and eased liquidity constraints and investor anxieties, a second wave of the virus hit earlier than expected in the final quarter of 2020 dampening the recovery, most notably in Western Europe.”
“The global recovery that began in the third quarter of 2020 is expected to continue through 2021 albeit with a good deal of unevenness and unpredictability. Even barring an immediate return of austerity, it will take more than one year for output and employment to return to their pre-COVID-19 levels in most countries, leaving the world economy of early 2022 well below where it would be if pre-COVID-19 trends had continued,” UNCTAD further added.
The world economy will take more than a decade to catch up to its pre-pandemic growth trend, according to UNCTAD, unless there is a determined change in policy direction.
The UN agency has also noted that the pandemic has resulted in dramatic rises in private financial leverage in some countries, especially in the US over the past 12 months, suggesting the risk of a financial crash if growth prospects do not sufficiently improve.
“While the unprecedented debt levels may be manageable in countries that issue reserve currencies, rising external debt levels have resulted in increased incidences of sovereign defaults and high debt distress in developing countries,” UNCTAD commented.
So far, the G20’s Debt Service Suspension Initiative has negotiated a standstill worth an estimated $12 billion to eligible developing countries between May 2020 and June 2021. But the eligible countries’ have a debt burden of around $80 billion in 2019 alone, according to the report.
UNCTAD further said in its report that, “The limited coverage of the suspension, its short-term nature, as well as the conditionalities attached, have made countries hesitant to apply, for fear of feeding negative effects on market ratings in exchange for a limited financial advantage.”
The UN agency also noted that the disconnect between financial markets and the real economy is a cause of “systemic concern for future stability and resilience”.
The COVID-19 pandemic has also worsened income inequality, the report said. The UNCTAD has estimated that the number of people living in severe poverty is projected to increase to 124 million by the end of this year, while the income of the top 1 percent has grown to staggering heights.