UNCTAD warns of 'lost decade' in aftermath of COVID-19 crisis

CAIRO - 14 November 2020: The United Nations Conference on Trade and Development (UNCTAD) released in September a report titled "From Global Pandemic to Prosperity for All: Avoiding Another Lost Decade." The report suggests that the world may experience either a prolonged recession, a double-tip recession, or permanent loss of potential output. The next stage of the global crisis may be the collapse of tourism. Also, the report speculates that the world can possibly experience a "lost decade."

 

Facts:

 

The report indicates that: "The effects on industry were less intense than in services, but lockdowns still hit output hard in many sectors, especially consumer durables, and there were sharp increases in inventories as consumers and investors cut their demand for non-essential products in response to the crisis. In contrast to non-essential goods and services, essential activities or sectors operated almost at full capacity during the Covid-19 shock."

 

The world's supply was sent to the negative territory because of four reasons. One is the fall in demand on non-essential goods and services. The second is the subsequent drop in private investments. The third is losses in financial markets. The fourth is "the increase in financial constraints, as banks raised lending standards and interest-rate spreads in anticipation of higher delinquency rates and higher risk premiums in capital markets, even after a reduction in the base interest rate by central banks."

 

"In May 2020, low- and lower-middle-income countries held only 5.5 per cent of the SDR 204 billion currently in circulation. This figure rises to 24 per cent, if upper-middle-income countries are included. Newly-issued SDRs are allocated to countries in accordance with each country’s quota share at the IMF and low- and lower-middle-income developing countries are the primary users of SDRs. Thus, by May 2020, low-income and lower-middle-income countries had used 58 per cent and 52 per cent of their current allocation of SDRs, respectively, compared to 18 per cent for upper-middle-income countries and 4 per cent for high-income countries.14 Regarding the 2009 allocation alone, most of the 21 countries that sold a significant part of their allocation within one year were developing countries (IMF, 2018)," the report showcases.

 

World

 

In 2020:

 

In the first few months, the global debt-to-GDP ratio jumped by no less than 10 percentage points to 331% of GDP.

 

Over the same period, the personal wealth of billionaire stockholders who own the majority of corporate stocks rose by over $500 billion in the United States alone.

 

The global economy will contract by 4% - 6.8% with an estimated decline of $6 trillion in the world's output.

 

International trade will shrink by 20%.

 

FDI will decrease by 40%.

 

Remittances will drop by 100%.

 

The world output level is projected to shrink by 4.3%.

 

The world primary commodity prices have dropped in 2020.

 

Prices of all commodities are projected to fall by -21.5%.

 

Prices of non-fuel commodities are projected to fall by -2.3%.

 

Prices of food are projected to dip by 4.9%.

 

Prices of agricultural raw materials are projected to fall by -6.8%.

 

Prices of minerals, ores and metals are projected to fall by 8.2%.

 

The prices of fuel commodities are sent to dive to record -36.9%.

 

 

In 2021:

 

Global economy may grow by 4%.

 

"The Covid-19 recession will likely amount by end of 2021 to a $12 trillion loss in global income."

 

The world output level is projected to expand by 4.1%.

 

Developed Countries

 

In 2020:

 

The economies of some high-income states will hit a double-digit decline.

 

G20 countries adopted temporary relief packages that are estimated at a staggering $13 trillion.

 

Developed countries' economies will contract by -5.8%.

 

In 2021:

 

Developed countries' economies will grow by 3.1%.

 

Developing Countries

 

Between 90 and 120 million individuals will be pushed below the poverty line.

 

300 individuals will be subject to food insecurity.

 

Between October 2020 and March 2022, developing states are likely to experience a a $2 trillion to $3 trillion gap in their financing needs. That is because of declining tax revenues, collapse in export earnings, pending debt payments, and increased health spending. 

 

In 2020 and 2021, developing countries are facing substantial redemption schedules for their public external debt, amounting to between $2 trillion and $2.3 trillion for high-middle-income countries and to between $600 billion and $1 trillion for lower-middle and low-income countries.

 

In 2020:

 

The economies of developing countries will contract by -2.1%.

 

In 2021:

 

The economies of developing countries will grow by 5.7%.

 

Regions

 

The economy of Africa will grow by -3% in 2020 and 3.5% in 2021.

 

The economy of Latin America and the Caribbean will grow by -7.6% in 2020 and 3%.

 

The economy of Asia will grow by -0.9% in 2020 and 6.3% in 2021.

 

Scenarios

 

In case of resorting to austerity, annual figures until 2030 will be as following. Global GDP growth will decline by 1%, unemployment will rise by 2%, and labor income shares will drop by 3% so as a portion of income worth $40 trillion will be transferred from workers to profit earners by 2030. 

 

 

Recommendations for Sustainable Recovery

 

It is crucial not to consider employment solely in terms of the number of jobs created but also with respect to wage growth for already low-wage jobs.

 

Advanced economies shall commit to full employment, while developing economies shall reduce informal employment.

 

The enlargement of the tax base will lead to subsequently boost tax revenues.

 

Adopting expansionary macroeconomic policies on the monetary and fiscal levels until the private sector regains confidence to spend.

 

Injecting public investments, particularly in the sectors of environment preservation, urban development, new and renewable energy, and universal public services.

 

Central banks shall make the real interest rate in negative in order to stimulate borrowing and spending among firms and individuals.

 

Subsidies granted to fossil fuels and industrial farming shall be revisited.

 

A large allocation of SDRs – somewhere between $1-3 trillion - is the "most feasible and least burdensome option" in order to alleviate balance of payment pressures in the short run.  

 

Combating corporate tax avoidance and evasion and other forms of illicit financial flows.