Russia’s military incursion in Ukraine is the heaviest of the factors behind the 1% drop in projected global economic advance this year, according to the latest update from the UN conference for development and trade issues.
The UN Conference on Trade and Development (UNCTAD) on Thursday cut its forecast for global growth in 2022 by 1%, putting it at 2.6%.
The director of UNCTAD’s Division on Globalization and Development Strategies, Richard Kozul-Wright indicated that in September last year they had anticipated that the world economy would grow by around 3.6%.
“Of course, the main factor among those contributing to this adjustment is the war in Ukraine,” Kozul-Wright told reporters in Geneva.
In the face of soaring inflation and a huge trillion dollar debt burden on developing countries, the UN agency denounced the inadequate financial measures that have been taken to help these nations withstand exchange rate instability, rising interest rates and soaring food and fuel prices.
According to the organization, large-scale multilateral fiscal reform – possibly of the magnitude and ambition of the U.S. Marshall Plan for the reconstruction of Western Europe after World War II – is urgently needed to improve the financial liquidity of developing countries and prevent their economic collapse.
In this regard, UNCTAD appealed to the International Monetary Fund (IMF) and the World Bank to step in.
“There is a rapidly worsening outlook for the world economy in 2022. After two years of crisis with the COVID-19 pandemic, the average growth rate of the world economy will be 2.6%, down from 5.5% last year and below the projections made in the last quarter of 2021,” stressed the UNCTAD secretary-general.
Rebeca Grynspan called for “emergency measures from the IMF and the World Bank,” alluding to the activation of rapid financing instruments that the Monetary Fund can provide to help countries with balance of payments problems.
Automatically driven trucks transport sea containers at a port in Rotterdam, Netherlands.Unsplash/Bernd Dittrich
Automatically driven trucks transport sea containers at a port in Rotterdam, the Netherlands.
“Conditions are deteriorating for everyone,” he warned, citing the climate crisis and successive droughts in the Horn of Africa, the COVID-19 pandemic and the war in Ukraine as factors affecting the global economy.
Even relatively wealthy countries have sought help from the international system to stay afloat, he noted.
“Pakistan turned to the IMF late last year. Sri Lanka turned now to organize a program. Egypt, which was already in a program, has come back to renegotiate. These are not less developed countries, they are middle-income countries that are under serious economic and, in some cases, political pressure as a result of the shocks they are facing right now,” Kozul-Wright emphasized.
But it is the poorest and most import-dependent countries that will be hardest hit by the global economic slowdown and could suffer a recession, UNCTAD insisted.
“Developing countries bear the brunt because of the steep rise in food, energy and fertilizer prices, and the financial pressure they are already under,” Grynspan said.
While all regions will be negatively affected by this crisis, major commodity exporters are likely to benefit from higher prices, said Kozul-Wright, who, however, estimated that the European Union’s economic performance will decline quite significantly this year, as will parts of Central and South Asia.
UNCTAD’s recommendations highlight the need for global financial reform to give developing countries the economic space for reasonable growth to service crippling debts.
“Debt service in 2020 for developing countries, excluding China, was already $1 trillion. That’s the kind of financial pressure developing countries are under,” Kozul-Wright specified.
“We know and have argued in the past that the G20 initiatives, especially the Debt Service Suspension Initiative, are welcome. But it was clearly insufficient as it only provided about $11 billion to eligible countries,” he added.