World economic growth is forecast to decelerate to 2.4 per cent this year – marking recession in the global economy – from 3 per cent in 2022 as deepening inequalities, mounting debt and uneven post-Covid recovery take hold.
All regions, except for east and central Asia, are expected to post slower growth this year compared to 2022, with Europe registering the largest drop, the UN Conference on Trade and Development (Unctad) said on Wednesday in its report.
The projection for modest growth of 2.5 per cent next year depends on the eurozone's recovery and the avoidance of adverse shocks by other leading economies, it said in the report titled Growth, Debt, and Climate: Realigning the Global Financial Architecture.
Global economic growth is unlikely to rebound sufficiently to pre-pandemic levels, which means urgent needs such as food security, social protection and climate change are at risk of being shelved, the UN body warned.
Growing inequalities within countries are weakening global demand, holding back investment and limiting growth, it said.
"There is no clear driving force to propel the world economy on to a robust and sustainable recovery track," Unctad said.
"Without decisive action, the fragility of the global economy and an array of diverse shocks risk evolving into systemic crises. Policymakers must navigate these challenges on multiple fronts to chart a more robust and resilient trajectory for the future."
Decelerating economic growth in 2023 and 2024, which is set to fall below the average for the five-year pre-pandemic period in all regions except Latin America, is "of particular concern" given the ambitious development and climate targets set by the international community with a 2030 delivery date, Unctad said.
Global trade in goods and services is forecast to grow about 1 per cent in 2023, significantly below world economic output growth, according to the report.
This is also lower than the average growth registered during the past decade, itself the slowest average growth period for global trade since the end of the Second World War.
"A significant reshaping of world trade, including the restructuring of global supply chains, is under way. Navigating this transformation poses major challenges to most developing economies at a time when their prospects for economic growth are deteriorating, the investment climate is worsening and financial stresses are mounting," Unctad said.
Many developing countries could become caught in the crossfire of trade disputes or face growing pressure to take sides in economic conflicts they neither want nor need, the UN body warned.
The rise of protectionist unilateral trade measures can also hit developing economies’ exports and hinder their prospects for structural transformation.
Another major concern is the debt burden weighing on developing countries.
Low or lower middle-income "frontier economies" have been hit hardest, Unctad said.
External public and publicly guaranteed (PPG) debt in these economies has tripled in the past decade, straining public finances and diverting resources from critical development goals, a trend worsened by the shocks of the pandemic and climate change.
The PPG debt service surged for these countries from nearly 6 per cent to 16 per cent of government revenue in the decade following the global financial crisis.
Nearly a third of frontier economies are on the precipice of debt distress and urgent measures are needed to prevent more countries from reaching the brink of financial distress or tipping into default.
Unctad called for a reduction in inequality between countries and for major central banks to play a bigger role in creating stability in the global economy.
"We need a balanced policy mix of fiscal, monetary and supply-side measures to achieve financial sustainability, boost productive investment and create better jobs," Unctad's secretary general Rebeca Grynspan said.
"Regulation needs to address the deepening asymmetries of the international trading and financial system."
Unctad urged policymakers to adopt a policy mix prioritising the delivery of sustainable, investment-led growth and development.
Unctad recommended that central banks strengthen international co-ordination with a greater focus on long-term financial sustainability for the private and public sectors, and not just on price stability.
Investment in the energy transition in developing countries must be actively pursued, by making technology and finance available and affordable, it said. This requires stronger multilateral co-operation and appropriate agreements in the World Trade Organisation, the International Monetary Fund and the World Bank.
"In light of growing interdependencies in the global economy, central bankers should assume a wider stabilising function, which would help balance the priorities of monetary stability with long-term financial sustainability," Unctad said.