UNITED NATIONS: The United Nations (UN) has warned that the global economy is on a path towards a prolonged slowdown unless significant reforms are undertaken in the global financial system.
These reforms should encompass strategies to address inflation, inequality, sovereign debt, and the reinforcement of market regulations.
According to a report released by the U.N. Conference on Trade and Development (UNCTAD), economic growth is expected to stall, with a projected growth rate of 2.4% in 2023, down from 3% in 2022. There is little hope for a substantial rebound in 2024.
The UNCTAD report highlights that the global economy is at a “critical juncture,” with some economies experiencing growth and expansion while others face economic challenges.
Rebeca Grynspan, the Secretary-General of UNCTAD, stressed the importance of avoiding past policy mistakes and advocated for a balanced policy approach involving fiscal, monetary, and supply-side measures to ensure financial sustainability, stimulate productive investments, and create better employment opportunities.
She also emphasized the need for regulatory measures to address the growing disparities within the international trade and financial system.
UNCTAD pointed out that the global economic recovery from the COVID-19 pandemic has resulted in significant divergence among economies, raising concerns about the lack of policy coordination on the right path forward.
In the United States, despite rising interest rates, the economy has achieved a controlled economic slowdown thanks to robust consumer spending, avoiding fiscal austerity measures, and active monetary intervention earlier in the year. However, there are lingering concerns about investment due to persistently high interest rates.
The report highlighted that after the COVID-19 shock, the profits of the top 2,000 multinational enterprises continued to rise while the global labor income share continued to decline.
In contrast, Europe is facing the potential of a recession, with monetary policy tightening rapidly and strong economic headwinds. Major European economies are experiencing slowdowns, and Germany is already in a state of economic contraction. Stagnant or falling real wages, coupled with fiscal austerity measures, contribute to Europe’s sluggish growth.
Although showing signs of recovery from the previous year, China is dealing with weak domestic consumer demand and private investment. However, it has more room for fiscal policy adjustments compared to other major economies.
One of the primary concerns highlighted in the report is the persistence of economic inequality, particularly in developing countries disproportionately affected by the tightening of monetary policies in more advanced economies. This widening wealth gap threatens the fragile economic recovery and the achievement of the Sustainable Development Goals (SDGs).
The report also noted that rising interest rates, weakening currencies, and slow export growth are squeezing the fiscal capacity for essential needs, potentially turning the growing debt service burden into a development crisis, according to UNCTAD’s warning. —APP
