By Abimbola Abdullahi
The UNCTAD`s Trade and Development Report 2020, has disclosed that between 90 million and 120 million people will be pushed into extreme poverty in the developing world, with close to 300 million facing food insecurity, if nations adopts austerity measures against COVID-19.
In the face of a deep global recession amid a still unchecked pandemic, the world needs a global recovery plan that can return even the most vulnerable countries to a stronger position than they were in before COVID-19, UNCTAD stated.
According to the report, key to success will be tackling a series of pre-existing conditions that were threatening the health of the global economy even before the pandemic hit.
They include hyper-inequality, unsustainable levels of debt, weak investment, wage stagnation in the developed world and insufficient formal sector jobs in the developing world.
UNCTAD Secretary-General Mukhisa Kituyi said: “Building a better world require smart actions now. The lives of future generations, indeed of the planet itself, will depend on the choices we all take over the coming months.”
Drawing lessons from the global financial crisis, the report argues that recovery and reform, at both the national and international levels, must go hand in hand if building back better is to move beyond sloganeering and become the lodestar of a more resilient future.
It shows that a big public investment push with effective international support and coordination could all but double the global growth rate over the next decade along with improved debt sustainability and a fairer distribution of income.
If last year`s economic forecasts had materialized, the world would now be enjoying a pick-up in global growth, led by the large emerging economies, the report says.
Instead, the global economy will contract this year by over 4%, with an estimated swing of 6.8 percentage points leaving a shortfall in global output by year’s end of over $6 trillion (in current US dollars).
And as domestic activity contracts sharply almost everywhere, so goes the international economy; trade will shrink by around one-fifth this year, foreign direct investment by up to 40% and remittances will drop by over $100 billion.
The biggest absolute falls in output will be in the developed world, with some countries set to register a double-digit decline over the year.
But the greatest economic and social damage will be in the developing world, where levels of informality are high, commodities and tourism major sources of foreign exchange, and fiscal space has been squeezed under a mountain of debt.
Between 90 million and 120 million people will be pushed into extreme poverty in the developing world, with close to 300 million facing food insecurity.
Latin America is likely to be particularly hard hit with a drop in output this year of 7.6%, with sharp declines, possibly double digit, in some of the largest economies, notably Argentina and Mexico, but the small Caribbean economies are also facing unprecedented economic devastation.
The contrast with East Asia, where growth will remain in positive territory, albeit much lower than in 2019 – China, for example, is expected to grow at 1.3% – is stark.
The temporary relief packages adopted mainly by advanced economies – estimated at a staggering $13 trillion for G20 countries – have mitigated the decline and with the lockdown easing, a rebound will take place in the second half of the year albeit unevenly across countries.
With a bigger fiscal punch than after the last crisis –including direct payments to households – and East Asian economies riding out the economic storm better than expected, the global downturn is not likely to be as harsh as some forecasts had suggested earlier this year.
All eyes are now on 2021. Even if economic activity continues to bounce back and advanced country governments continue with the current mix of fiscal and monetary measures, employment will not fully recover, many countries will remain in debt distress and income gaps will widen.
“Forecasters’ talk of a V-shaped recovery can easily mislead. Such a recovery would require double-digit global growth next year, which is out of the question,” said Richard Kozul-Wright, UNCTAD’s director of the division on globalization and development strategies.
According to the report, even a 5% growth rate – an unlikely outcome would still leave a $12 trillion income shortfall from what had been expected in 2019. If no other shock or contractionary forces surface, a global growth around 4% next year should be possible.
That will take the world to what some are calling the “90% economy” which, in the absence of serious reform, will not only be smaller than before but more fragile, more unequal and less innovative. That leaves an uncomfortable amount of room for policy uncertainty and further slippages.
