East and Southeast Asia are expected to show lower growth rates than in the five years before the pandemic.
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The UN issues a warning that the world is “on the brink of a recession” and that developing countries like those in Asia could bear the brunt of it.
Monetary and fiscal policies in advanced economies – including continued interest rate hikes – could push the world into global recession and stagnation, the United Nations Conference on Trade and Development (UNCTAD) said on Monday. ).
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A global slowdown could potentially inflict worse damage than the 2008 financial crisis and the Covid-19 shock in 2020, UNCTAD warned in its Trade and Development Report 2022.
“All regions will be affected, but the alarm bells are ringing especially for developing countries, many of which are approaching default,” the report said.
We still have time to step back from the brink of recession. Nothing is inevitable. We have to change course.
Rebeca Grynspan
Secretary-General of UNCTAD
Asian and global economies are headed for recession if central banks continue to raise interest rates without also using other tools and looking at supply-side economics, UNCTAD said, adding that a desired soft landing would be unlikely.
“Today we must warn that we may be on the brink of a policy-induced global recession,” UNCTAD Secretary-General Rebeca Grynspan said in a statement.
“We still have time to step back from the brink of recession. Nothing is inevitable. We have to change course.”
“We therefore call for a more pragmatic policy mix that deploys strategic price controls, windfall taxes, anti-trust measures and stricter regulations on commodity speculation. I repeat, a more pragmatic policy mix. .. we must also redouble our efforts to end commodity price speculation.”
Impact on Asia
The prognosis is grim across the region, according to the UNCTAD report.
Interest rate hikes in the United States this year will shave about $360 billion off future income for developing countries outside China, while net capital flows to developing countries have turned negative.
“On the net, developing countries are now funding developed countries,” the report says.
“Interest rate hikes by advanced economies are hitting the most vulnerable the hardest. Some 90 developing countries have seen their currencies weaken against the dollar this year.”
East and Southeast Asia are expected to show lower growth rates than in the five years before the pandemic. UNCTAD expects East Asia to grow by 3.3% this year, compared to 6.5% last year.
Costly imports and slowing global demand for exports along with slowing China will also add further pressure on this part of the region, according to the report.
Over-indebtedness is increasing in South Asia and West Asia. Sri Lanka is in sovereign default, Afghanistan remains over-indebted and Turkey and Pakistan face rising bond yields.
Pakistan is reeling from the floodsand is already suffering from growing indebtedness and declining foreign exchange reserves.
Focusing solely on a monetary policy approach – without addressing supply side issues in trade, energy and food markets – to the cost of living crisis could indeed exacerbate it.
A new note from Capital Economics on Tuesday echoes UNCTAD’s findings.
He said the latest Global Manufacturing Purchasing Managers’ Index – which measures industrial activity – indicated that global industries “have weakened significantly and are expected to deteriorate in the coming months as inflation high and rising interest rates are taking their toll.”
The silver lining is that this spare capacity will ease global shortages and reduce price pressures, said Capital’s senior global economist Simon MacAdam.
This is the result of the rush to set interest rates after years of ultra-low rates as global policymakers failed to raise inflation during this period or generate healthier economic growth. UNCTAD added.
“Focusing solely on a monetary policy approach – without addressing supply issues in trade, energy and food markets – to the cost of living crisis may indeed exacerbate it,” said UNCTAD.
“In the current supply chain challenges and growing uncertainty, where monetary policy alone cannot safely reduce inflation, pragmatism will have to replace ideological conformity to guide future policy measures. .”
UNCTAD suggested that countries review overdue wage increases and continue to create jobs.
There should also be more public investment in economic and social infrastructure to boost employment, increase productivity, improve energy efficiency and reduce greenhouse gas emissions.
Governments should consider tax reforms, including more wealth and windfall taxes, a reduction in regressive tax cuts and loopholes, and cracking down on tax havens by corporations and wealthy individuals, the report says. .
