Is there any time to step back from the edge of recession?

The United Nations recently published a report titled “UNCTAD: Policy mistakes could trigger worse recession than 2007 crisis and addressed the current state of recession in the world.

Here is the summary of the report:

According to the UNCTAD report, the world is headed towards a global recession and prolonged stagnation unless fiscal and monetary policies holding sway in some advanced economies are quickly changed.

Noting that the current course of action is hurting the most vulnerable, this is a matter of policy choices and political will. UNCTAD is warning that the policy-induced global recession could be worse than the global financial crisis of 2007 to 2009.

Excessive monetary tightening and inadequate financial support could expose developing world economies further to cascading crises. And while all regions will be affected, alarm bells are ringing most for developing countries, many of which are edging closer to debt default.

As climate stress intensifies, so do losses and damage inside vulnerable economies that lack the fiscal space to deal with disasters.

The report projects that world economic growth will slow to 2.5 per cent in 2022 and drop to 2.2 per cent in 2023 – a global slowdown that would leave GDP below its pre-COVID pandemic trend and cost the world more than $17 trillion in lost productivity.

Despite this, leading central banks are sharply raising interest rates, threatening to cut off growth and making life much harder for the heavily indebted.

Developing countries have already spent an estimated $379 billion of reserves to defend their currencies this year, almost double the amount of the International Monetary Fund’s (IMF) recently allocated Special Drawing Rights to supplement their official reserves.

Some 90 developing countries have seen their currencies weaken against the dollar this year – over a third of them by more than 10 per cent.
And as the prices of necessities like food and energy have soared in the wake of the Ukraine war, a stronger dollar worsens the situation by raising import prices in developing countries.

UNCTAD has called for advanced economies to avoid austerity measures to reform the multilateral architecture to give developing countries a fairer say.

For much of the last two years, rising commodity prices – particularly food and energy – have posed significant challenges for households everywhere. And while upward pressure on fertilizer prices threatens lasting damage to many small farmers around the world, commodity markets have been in a turbulent state for a decade.

Although the UN-brokered Black Sea Grain Initiative has significantly helped to lower global food prices, insufficient attention has been paid to the role of speculators and betting frenzies in futures contracts, commodity swaps and exchange traded funds (ETFs). Also, large multinational corporations with considerable market power appear to have taken undue advantage of the current context to boost profits on the backs of some of the world’s poorest countries.

UNCTAD has urged governments to use price controls on energy, food and other vital areas; investors to channel more money into renewables; and called on the international community to extend more support to the UN-brokered Grain Initiative.