UNITED NATIONS (AP) — The United Nations (UN) warned on Monday that the world economy is “on a cliffhanger”, still reeling from the COVID-19 pandemic whose impact will be felt for years but still expected to make a modest recovery of 4.7 per cent in 2021 which would barely offset 2020 losses.
The UN’s new report on the World Economic Situation and Prospects said the once-in-a-century crisis sparked by the global impact of the coronavirus caused the global economy to shrink by 4.3 per cent in 2020 – the sharpest contraction in global output since the Great Depression that began in 1929 and far higher than the 1.7 per cent reduction during the Great Recession of 2009.
“The depth and severity of the unprecedented crisis foreshadows a slow and painful recovery,” said UN Chief Economist Elliott Harris, the assistant secretary-general for economic development. “As we step into a long recovery phase with the roll out of the vaccines against COVID-19, we need to start boosting longer-term investments that chart the path toward a more resilient recovery – accompanied by a fiscal stance that avoids premature austerity.”
According to the report, the lockdowns, quarantine measures and social distancing introduced during the second quarter of 2020 “helped to save lives but also disrupted the livelihoods of hundreds of millions of people worldwide”.
By April, it said, “full or partial lockdown measures affected almost 2.7 billion workers, representing about 81 per cent of the world’s workforce”. And it said another 131 million people were pushed into poverty, many of them women, children and people from marginalised communities.
China, the world’s second-largest economy where COVID-19 first emerged, was the only country to register positive economic growth in 2020 – 2.4 per cent – and the UN forecasts that it will grow by 7.2 per cent in 2021.
The UN’s Global Economic Monitoring Branch Chief and the report’s lead author Hamid Rashid told a news conference launching the report that China will account for about 30 per cent of global growth in 2021. If that happens, he said, it will help many countries in Africa, Latin America and the Caribbean that supply resources and commodities to China.
According to the UN forecasts, the United States (US) economy will grow 3.4 per cent in 2021 after shrinking 3.9 per cent in 2020, Japan’s economy will grow three per cent this year after contracting 5.4 per cent last year, and economies of Euro-zone countries will grow five per cent in 2021 after shrinking 7.4 per cent in 2020.
Developing countries saw a less severe contraction of 2.5 per cent last year, and the UN is forecasting a 5.7 per cent rebound in 2021.
The UN said “it will remain critical” that the Group of 20 – the world’s 20 major economies accounting for nearly 80 per cent of world output – “return to the trajectory of growth, not only to lift the rest of the world economies but also to make the world economy more resilient to future shocks”.
The USD12.7 trillion in global fiscal stimulus – over half from Germany, Japan and the US – “prevented a Great Depression-like economic catastrophe worldwide”, the UN said. “Stimulus spending per capital averaged nearly USD10,000 in the developed countries, while it amounted to less than USD20 per capita in the least developed countries,” the report said.
Rashid said the primary goal of the fiscal stimulus was to stabilise the global economy “so there was no drying up of liquidity”. This was achieved, but the secondary goal was to stimulate investments and prevent bankruptcies and “here we see significant slack”.
Rashid said the major economies saw significant increases in money supply, about 23 per cent for the US, which is not surprising since most stimulus money went into the financial markets because households were unable to spend the money or businesses were unable to invest because they were uncertain about the future.
The big winners were stock markets, he said. Looking at the major stock indexes Japan’s Nikkei 225 increased about 45 per cent between March and December and the Dow Jones and S&P 500 both went up by over 30 per cent, compared to average increases below 10 per cent in the previous five years.
“And that is alarming because that shows the disconnect between the real economic activities and the financial sector activities,” he said.