UNCTAD calls for coordinated effort and increase in financial resources

Released on April 17, 2024, the United Nations Trade and Development Report, 2024 has said that the risks that threatened to substantially slow down global economic growth in 2023 did not fully materialize. According to it, some economies – including large ones, such as China, India, Indonesia, the Russian Federation, the United States, among others – escaped the financial trouble that loomed earlier in the year. As a result, the world economy grew 2.7 per cent, just 0.2 percentage point more than the threshold of 2.5 per cent that is often associated with a global recessionary phase.

However, the report says that this positive dynamic is now being squandered. Policy discussions continue to centre on inflation, conveying confidence that anticipated monetary easing will heal the world’s economic woes. Meanwhile, the pressing challenges of trade disruptions, climate change, low growth, underinvestment and inequalities are growing more serious. UNCTAD latest projections point to global growth of 2.6 per cent in 2024, slightly slower than in 2023.

It also states that 2024 is the third consecutive year in which the global economy will grow at a slower pace than before the pandemic, when the average rate for 2015–2019 was 3.2 per cent. Even more concerning than its projected pace, is the fact that global growth appears to be strongly driven by private consumption.

Meanwhile, in 2024, private consumption is projected to grow about 4 per cent while total income is only projected to expand 2.6 per cent. In practice, patterns observed since the early 2000s indicate that periods of fast consumption growth tend to be financed by borrowing. Given that the savings accumulated during the pandemic (mainly by more affluent households) have now mostly returned to pre-2020 levels, debt is the likely source of funding for a large share of consumption. In terms of policies, the reliance on debt accumulation – in private and public sectors alike – introduces a two-fold tension between seeking financial market stability and attaining other macroeconomic goals.

First, the pressure to prioritize the stability of the financial markets tends to have a negative impact on funding for the public sector, as government deficits are frequently chastised by bond markets and international financial institutions. Second, in addition to the pressure to contain public budgets, fast value creation by the financial markets benefits the holders of financial asset while crowding out fixed investment. Data point to a dismal performance of private investment globally in 2023 and an even worse one projected for 2024.

In the meantime, challenges such as climate change and development require a greater coordinated effort and more financial resources. Carbon emissions continue to increase, absent a coordinated plan for the transition of energy systems towards renewables. Inequality continues to increase after the pandemic, with workers receiving a lower share of income in both developed and developing countries. “Equally concerning, years of underinvestment are depriving the world of the resources required to enable sustainable development. For the developing countries, constrained fiscal space in the context of growing debt challenges means a further restricting of public budgets and investment,” the report says.

In this context, the report mentions that a keenly anticipated reduction in interest rates in 2024 can certainly help by easing the pressure on private and public budgets across the world. But any expectations that monetary policy alone can provide solutions for the key global challenges are unrealistic. “Climate change, inequality and a real resolution of ongoing sovereign debt crises require a two-pronged approach. It should be based on the strategic involvement of the public sector to enact supply-side policies that revive investment (not speculative flows), and the demand side policies that ensure full employment and a healthy growth of incomes. As the global economy continues its post-pandemic recovery, it is critical to safeguard the space for public sector investment policies, ranging from the bolstering of food systems to the expansion of renewables, as well as social and physical infrastructure needed to accelerate sustainable development, stabilize the climate and reduce inequalities,” it adds.

Staff Reporter, Thimphu