The UN agency in charge of trade and development on Monday called on central banks to quickly loosen the monetary noose in order to avoid a global recession.
“We may be on the brink of a global recession caused by economic” policies, said the secretary-general of the United Nations Conference on Trade and Development (UNCTAD), Rebeca Grynspan, during the presentation of the principal annual report of this organization.
UNCTAD has revised growth forecasts downward. “Global growth of 2.5% in 2022 will further decelerate to 2.2% in 2023,” Grynspan said.
In March, the organization had already reduced its projection for global economic growth for 2022 from 3.6% to 2.6%.
In comparison, the OECD, which maintained its forecast at 3% for 2022, announced that it expects growth of 2.2% next year. The IMF, on the other hand, forecasts growth of 3.2% this year, and 2.9% in 2023.
“It is traditional that a global growth rate of 2.5% is considered a growth recession,” explained Richard Kozul-Wright, director of the team in charge of the report.
According to UNCTAD, the rapid rise in interest rates and fiscal tightening in advanced economies, combined with the multiple crises resulting from the Covid pandemic and the war in ukraine“have already turned weak global growth into a marked slowdown.”
“There is still time to stave off the risk of a recession,” said Grynspan.
The American and European central banks have been trying to fight inflation in recent months by raising key rates, but fears of a recession caused by brutal monetary tightening are intensifying.
“Believing that they can lower prices by relying on higher interest rates without causing a recession is […] a reckless gamble,” according to UNCTAD.
The shadow of recession hangs over the United States, and Germany should be, according to the OECD, the first major European economy to fall into recession next year.
“Correction of trajectory”
“The current course of action hurts the most vulnerable, especially in developing countries, and risks tipping the world into a global recession,” Grynspan said.
Monetary and fiscal policies taken by advanced economies are pushing the world into a global recession and prolonged stagnation, “inflicting damage worse than that of the 2008 financial crisis and the 2020 Covid-19 shock”, warns the UNCTAD.
The organization points out that inflation is already beginning to decline in advanced economies thanks to the agreement concluded under the aegis of the UN between Ukraine and Russia on Ukrainian grain exports and calls for a “correction of course » for policy measures that directly target price spikes in energy, food and other vital areas.
To combat inflation, she advocates a “more pragmatic” strategy involving price controls, taxes, antitrust measures and tighter regulation of commodity speculation.
The slowdown in global economic activity affects all regions but is particularly alarming for developing countries.
Middle-income countries in Latin America, as well as low-income countries in Africa, will experience some of the steepest slowdowns this year. The report notes that the countries which showed signs of over-indebtedness before the health crisis are among the most affected (Zambia, Suriname, Sri Lanka), with climatic shocks threatening the economic stability of certain already vulnerable countries even more (Pakistan).
UN economists are also concerned that net capital flows to developing countries have turned negative and some 90 developing countries have seen their currencies weaken once morest the dollar this year.
It is estimated that developing countries have already spent $379 billion in reserves to defend their currencies this year.
Overall, 46 developing countries are severely exposed to multiple economic shocks and another 48 are seriously exposed, increasing the threat of a global debt crisis.
