The global organization United Nations (UN) alerted that the world economy is “on a cliffhanger,” still wobbling from COVID-19 whose aftermath will be visible for years but expected to make a modest recovery of 4.7 percent in 2021 which would barely balance 2020 losses.
The UN’s new report on the World Economic Situation and Prospects states that the crisis triggered by the global impact of the pandemic has made the global economy fall by 4.3 percent in 2020 which is the sharpest decline since the Great Depression and far higher than the 1.7 percent contraction during the Great Recession.
Even though the lockdowns, quarantine measures, social distancing and other restrictions introduced during the second quarter of 2020 aided to control the spread of the coronavirus and saving lives, it severely disrupted the livelihoods of hundreds of millions of people worldwide, the report says.
By April, the full or partial lockdown imposed by countries had affected nearly 2.7 billion workers, representing about 81 percent of the world’s workforce and another 131 million people were pushed into poverty which included a high number of women, children and people from marginalized communities.
“The depth and severity of the unprecedented crisis foreshadow a slow and painful recovery. As we step into a long recovery phase with the rollout of the vaccines against COVID-19, we need to start boosting longer-term investments that chart the path toward a more resilient recovery accompanied by a fiscal stance that avoids premature austerity.”
The world’s second-largest economy China, where COVID-19 first emerged, was the only country in the world to register positive economic growth in 2020, 2.4 percent and the UN forecasts that it will grow by 7.2 percent in 2021.
Hamid Rashid, chief of the UN’s Global Economic Monitoring Branch and the report’s lead author forecasts that China will account for about 30 percent of global growth in 2021 and if that happens, it will support many countries in Africa, Latin America and the Caribbean that supply resources and commodities to China.
According to the UN forecasts, the US economy will grow 3.4 percent in 2021 after shrinking 3.9 percent last year, Japan’s economy will witness a 3 percent growth this year after contracting 5.4 percent, and economies of Euro-zone countries will grow 5 percent in 2021 after falling 7.4 percent in 2020. While the developing countries saw a less severe contraction of 2.5 percent last year will recover by 5.7 percent in 2021.
More than half of the $12.7 trillion global fiscal stimulus came from Germany, Japan and the United States which prevented a Great Depression-like economic catastrophe across the globe, the UN said. “In dollar terms, stimulus spending per capita averaged nearly $10,000 in the developed countries, while it amounted to less than $20 per capita in the least developed countries,” the report added.
The initial aim of the fiscal stimulus was to stabilize the global economy and it was attained without any drying up of liquidity. But the secondary goal was to stimulate investments and prevent bankruptcies and a significant lag was visible there, Mr. Rashid stated.
All the major economies witnessed a notable increase in money supply, which isn’t surprising since most stimulus money flowed into the financial markets because households were unable to spend the money or businesses were unable to invest because they were uncertain about the future.
The UN official says that the big winners were stock markets, when looking the major stock indexes, Japan’s Nikkei 225 increased about 45 percent between March and December and the Dow Jones and S&P 500 both went up by more than 30 percent, compared to average increases below 10 percent in the previous five years.
“And that is alarming because that shows the disconnect between the real economic activities and the financial sector activities,” Mr. Rashid stated.