The United Nations has warned that the world economy is headed for a protracted slowdown without reform of the global financial architecture, better policies to combat inflation, inequality, sovereign debt and stronger market regulation.
Economic growth is forecast to stall, slowing to 2.4 percent in 2023, from 3 percent in 2022, across most global regions with little prospect of a rebound in 2024, the UN Conference on Trade and Development (UNCTAD) said in a report released on Wednesday.
The UN trade body, which is based in Geneva, said that the global economy is at “a critical juncture”, with some economies thriving and expanding, while others falter and slow down.
Rebeca Grynspan, UNCTAD Secretary-General, emphasised the need to avoid past policy errors.
“We need a balanced policy mix of fiscal, monetary and supply-side measures to achieve financial sustainability, boost productive investment and create better jobs. Regulation needs to address the deepening asymmetries of the international trading and financial system,” she said.
According to the UNCTAD, the global economy’s recovery from the pandemic is marked by significant divergence, prompting concerns about the right path forward in the absence of policy coordination.
In the United States, the report said, despite rising interest rates, the economy has defied pessimistic predictions by experiencing a controlled economic slowdown.
This “soft landing” can be attributed to robust consumer spending, the avoidance of fiscal austerity measures, and active monetary intervention earlier in the year.
At the same time, lingering investment concerns remain, particularly due to extended high-interest rates, the report added.
After the COVID-19 shock, profits of the top 2,000 multinational enterprises further increased while the global labour income share continued to shrink.
Conversely, Europe teeters on the brink of a potential recession, grappling with a rapid tightening of monetary policy and strong economic headwinds. Major economies are slowing down and Germany is already in a state of contraction.
Stagnant or falling real wages across the continent, compounded by fiscal austerity, are dragging down growth, UNCTAD said.
China, while showing signs of recovery from last year, faces weak domestic consumer demand and private investment, the report noted.
However, it has more fiscal policy space compared to other major economies, which could be leveraged to address these challenges, the UN agency added.
One of the key concerns is the persistence of economic inequality, especially in developing countries disproportionately affected by monetary tightening in more advanced economies.
This widening wealth gap poses a threat to the fragile economic recovery and reaching the Sustainable Development Goals (SDGs).
Rising interest rates, weakening currencies and sluggish export growth have combined to squeeze the fiscal space for essential needs, transforming the growing debt service burden into an unfolding development crisis, UNCTAD warned.
