The global economy faces a lost decade after the Covid-19 pandemic unless policymakers spurn austerity measures in favour of a comprehensive recovery plan built on investment in sustainable growth, the United Nations has said.
In its annual trade and development report, the UN’s economic arm said a repeat of the cost-cutting conducted by governments after the financial crisis of 2008-09 would choke off recovery and risk a double-dip recession in 2022.
The UN Conference on Trade and Development (Unctad) said that, despite a better than expected growth performance in recent months, the global economy was on course to shrink by 4% this year. The turnaround from the near-3% growth predicted before the pandemic struck would cost $6tn (£4.7tn) in lost output, it added, with international trade down by 20%, foreign direct investment dropping by 40% and remittances cut by more than $100bn.
While the biggest falls in growth rates would be in developed countries, the UN body said the greatest economic and social damage would be felt in poorer countries. As a result of the pandemic, between 90 million and 120 million people would be pushed into extreme poverty in the developing world, with close to 300 million facing food insecurity.
The report warned there would be no full recovery even if governments continued with their current stimulus policies.
“Forecasters’ talk of a V-shaped recovery can easily mislead. Such a recovery would require double-digit global growth next year, which is out of the question,” said Richard Kozul-Wright, the director of Unctad’s globalisation and development strategies division.
The risk, the report added, was that in the absence of a coordinated international plan for growth governments would revert to policies aimed at cutting wage costs and budget deficits.
“Fiscal austerity and corporate cost-cutting would do nothing but worsen the globe’s pre-existing conditions,” Kozul-Wright said.
“New rules on international trade and investment and new privileges for owners of intellectual property and vital technologies would further constrict the policy space developing countries need for sustainable growth,” he added.
Unctad said a global recovery plan needed to be both bold and comprehensive, built around a “coordinated macroeconomic expansion focused on job creation and higher wages and supported by a big public investment push into cleaner energy, environmental protection, sustainable transport systems and the care economy”.
The report said the alternative was that recovery would fizzle out in 2021 and that the global economy would contract again in 2022.
Such an outcome would aggravate the geopolitical tensions – such as trade disputes, migration pressures and environmental damage – that had been a feature of the global economy before Covid-19.
Unctad said the key to success would be tackling longstanding structural issues: inequality, unsustainable levels of debt, weak investment, wage stagnation in the developed world and insufficient formal sector jobs in the developing world.
Separately, the UN’s humanitarian chief has warned that the west will be haunted for decades to come by its failure to do more to help poor countries cope with the economic and social impact of the Covid-19 crisis.
Writing for the Guardian, Sir Mark Lowcock, the former top civil servant at the UK’s Department for International Development, said rich nations had acted decisively to deal with their own problems but failed to show the same vigour in response to the growing international crisis.
Lowcock, the UN under-secretary for humanitarian affairs, said that in the world’s most fragile countries starvation was set to double, life expectancy would fall and girls removed from school would never go back.
“All this will fuel grievances, and in their wake conflict, instability and refugee flows, all giving succour to extremist groups and terrorists. The consequences will reach far and last long.”