Global economy to grow 4.7% in 2021, Unctad says

It will take more than a decade for the world to catch up with its pre-pandemic growth without a shift in policies, according to the UN agency

Shipping containers are offloaded in the Port of Antwerp, Belgium. The global economy will grow 4.7 per cent in 2021, Unctad says. AP Photo

Global economic growth will accelerate to 4.7 per cent this year as widespread vaccine distribution is expected to help economies resume activities, according to a United Nations report.

This optimistic scenario is based on three assumptions – improved vaccination and disease containment in advanced and middle-income countries, a speedy transition from economic relief policies to recovery policies in the largest economies and no financial crash of global significance, the United Nations Conference on Trade and Development said on Thursday.

Even in this optimistic scenario, the world economy will still be 5 per cent below its pre-Covid-19 growth rate by the end of this year.

The Covid-19 pandemic caused a loss of global output in 2020 and a destruction of income at an estimated $5.8 trillion, the UN agency said. Even the most optimistic projections for the bounce back of growth will not cover the shortfall of income for several years, it added.

The global health crisis led to movement restrictions across most of the world’s major economies, paralysed international travel, hit manufacturing bases and disrupted supply chains, plunging the global economy into a deep recession.

Global trade recovered in the fourth quarter of 2020, narrowing its overall decline for the full year to 9 per cent, Unctad said in a report in February.

Overall, the world economy posted its sharpest annual drop in output since 1940, with no region spared.

The International Labour Organisation estimated that the crisis triggered a loss of 255 million full-time jobs worldwide.

“International trade dropped, quarter-on-quarter, by around 12 per cent in the second quarter of 2020 but has had an immediate V-shaped recovery with variations across developing countries and regions,” Unctad said.

The scarcity of foreign exchange in many developing countries – necessary to make debt and import payments, including for medical supplies – was compounded by a sharp fall in export earnings following the movement restrictions, the disruption of supply chains and the collapse of commodity prices, the UN agency said.

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”, according to the report.

“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,” Unctad said.

“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 warned that unless there is a determined shift in policy direction, the world economy will take more than a decade to catch up with its pre-pandemic growth trend.

The UN agency noted that the pandemic has resulted in a dramatic increases 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 said.

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 $80bn in 2019 alone, according to the report.

“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,” Unctad said in its report.

The UN agency added 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 number of people in extreme poverty is expected to increase by up to an estimated 124 million by the end of this year, while the wealth of those in the top one per cent has risen to staggering heights, Unctad estimated.