Russia-Ukraine war coupled with changes in macroeconomic policies by countries in recent months has compelled the United Nations (UN)’s trade and development body to downgrade its global economic growth projection for the current year to 2.6 per cent from 3.6 per cent.
“While Russia will experience a deep recession this year, significant slowdowns in growth are expected in parts of Western Europe and Central, South and South-East Asia,” said the United Nations Conference on Trade and Development (UNCTAD) on Thursday.
The UNCTAD’s revised projection is released along with the UN body’s annual flagship publication titled ‘Trade and Development Report (TDR) 2021’. This is the 41st edition of the TDR having the theme ‘From Recovery to Resilience: the Development Dimension.’
“The ongoing war in Ukraine is likely to reinforce the monetary tightening trend in advanced countries following similar moves that began in late 2021 in several developing countries due to inflationary pressures, with expenditure cuts also anticipated in upcoming budgets,” said the UN body in a press statement issued on Thursday from Geneva.
Global economy rebounded strongly in the last year by registering 5.60 per cent growth after being squeezed by 3.4 per cent in 2020 due to Covid-19.
“Assuming no further shocks, global growth is projected to reach 5.3 per cent in 2021, decelerating somewhat to 3.6 per cent in 2022,” said the WDR which was finalised before the war broke out a month ago. “These figures are the result of demand stimulus in advanced economies and economies issuing global currencies, but still reflect incomplete reactivation of the productive capacity idled in the recession of 2020,” it added.
As the war-related development could not be incorporated in the main report, UNCTAD’s revised projection of global growth is unveiled in a separate press statement.
UNCTAD is worried that a combination of weakening global demand, insufficient policy coordination at the international level and elevated debt levels from the pandemic, will generate financial shockwaves.
These may push some developing countries into a downward spiral of insolvency, recession and arrested development.
“The economic effects of the Ukraine war will compound the ongoing economic slowdown globally and weaken the recovery from the Covid-19 pandemic,” UNCTAD Secretary-General Rebeca Grynspan quoted to have said in the statement. “Many developing countries have struggled to gain economic traction coming out of the Covid-19 recession and are now facing strong headwinds from the war. Whether this leads to unrest or not, profound social anxiety is already spreading.”
“Even without lasting financial market disruptions, developing economies will face severe constraints on growth,” added the statement. “During the pandemic, their public and private debt stocks have increased. And issues that receded from view during the pandemic, including high corporate leverage and rising household debt in middle-income developing countries, will resurface as policy tightens.”
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