In March 2020, an analysis released by the UN Department of Economic and Social Affairs (DESA) pointed out that the global economy could shrink by up to one per cent that year due to the persisting COVID-19 pandemic, and may contract even further if restrictions on economic activities are extended without adequate fiscal responses.
The DESA briefing found that millions of workers were at risk of losing their jobs as nearly 100 countries closed their national borders. That translated to a global economic contraction of 0.9 per cent by the end of 2020, or even higher if governments failed to provide income support and help boost consumer spending.
According to the forecast, lockdowns in Europe and North America was hitting the service sector hard, particularly industries that involve physical interactions such as retail trade, leisure and hospitality, recreation and transportation services. Collectively, such industries account for more than a quarter of all jobs in these economies.
As businesses lose revenue, unemployment is increasing sharply in countries like Nigeria, transforming a supply-side shock to a wider demand-side shock for the economy. The severity of the impact largely depended on the duration of restrictions on the movement of people and economic activities and on the scale and efficacy of responses by national treasuries.
Against that backdrop, UN-DESA joined a chorus of voices across the UN system calling for well-designed fiscal stimulus packages which prioritise health spending and support households most affected by the pandemic.
UN Under-Secretary-General for Economic and Social Affairs, Liu Zhenmin,said “urgent and bold policy measures are needed, not only to contain the pandemic and save lives, but also to protect the most vulnerable in our societies from economic ruin and to sustain economic growth and financial stability.”
Spillover to developing countries
The analysis also warns that the adverse effects of prolonged economic restrictions in developed economies will soon spill over to developing countries via trade and investment channels. A sharp decline in consumer spending in the European Union and the United States will reduce imports of consumer goods from developing countries.
Developing countries, particularly those dependent on tourism and commodity exports, face heightened economic risks. Global manufacturing production could contract significantly, and the plummeting number of travellers is likely to hurt the tourism sector in small-Island developing States, which employs millions of low-skilled workers.
The UN civil aviation body, ICAO, welcomed the commitment by leaders of the G-20 industrialised nations indicating that bold fiscal support was needed to safeguard the global travel industry, in order to aid the global recovery in the coming months.
Meanwhile, the decline in commodity-related revenues and a reversal of capital flows are increasing the likelihood of debt distress for many nations. Governments may be forced to curtail public expenditure at a time when they need to ramp up spending to contain the pandemic and support consumption and investment.
UN Chief Economist and Assistant Secretary-General for Economic Development, Elliot Harris, said the collective goal must be a resilient recovery that puts the planet back on a sustainable track. “We must not lose sight of how it is affecting the most vulnerable population and what that means for sustainable development,” he stressed.
‘The alarms raised by UN-DESA echo another report, released on 31 March, in which UN experts issued a broad appeal for a “large-scale, coordinated, comprehensive multilateral response” amounting to at least 10 per cent of global gross domestic product (GDP).
Shared responsibility, global solidarity
The document, titled “Shared responsibility, global solidarity: Responding to the socio-economic impacts of COVID-10,” describes the speed and scale of the outbreak, the severity of cases, and the societal and economic disruption of the coronavirus.
Secretary-General, Antonio Guterres, launched the report with a dire warning about the scope of the crisis. “COVID-19 is the greatest test that we have faced together since the formation of the United Nations,” he stressed, noting that the virus is “attacking societies at their core, claiming lives and people’s livelihoods.”
The UN Chief underscored the importance of focusing on the most vulnerable by designing responses that, among other things, provide health and unemployment insurance and social protections while also bolstering businesses to prevent bankruptcies and job losses.
The recovery from COVID-19 must lead to an economy focused on building inclusive and sustainable economies that are more resilient in facing pandemics, climate change, and the many other global challenges, he added.
However, the strong growth in demand – for goods, as opposed to services – is largely the result of pandemic restrictions easing, but also from economic stimulus packages and sharp increases in the price of raw materials.
According to UN trade and development body, United Nations Conference for Trade and Development (UNCTAD), although worldwide commerce stabilised during the second half of 2021, trade in goods went on to reach record levels between July and September.
Services still sluggish
In line with this overall increase, the services sector picked up too, but it has remained below 2019 levels.
From a regional perspective, trade growth remained uneven for the first half of the year, but it had a “broader” reach in the three months that followed, UNCTAD’s Global Trade update said.
Trade flows continued to increase more strongly for developing countries in comparison to developed economies overall in the third quarter of the year, moreover.
The report valued the global goods trade at $5.6 trillion in the third quarter of this year, which is a new all-time record, while services stood at about $1.5 trillion.
For the remainder of this year, UNCTAD has forecast slower growth for the trade in goods but “a more positive trend for services”, albeit from a lower starting point.
Among the factors contributing to uncertainty about next year, UNCTAD cited China’s “below expectations” growth in the third quarter of 2021.
“Lower-than-expected economic growth rates are generally reflected in more downcast global trade trends,” UNCTAD noted, while also pointing to inflationary pressures” that may also negatively impact national economies and international trade flows.
The UN body’s global trade outlook also noted that “many economies, including those in the European Union”, continue to face COVID-19 related disruption which may affect consumer demand in 2022.
In addition to the “large and unpredictable swings in demand” that have characterized 2021, high fuel prices have also caused shipping costs to spiral and contributed to supply shortages.
This has contributed to backlogs across major supply chains that could continue into next year and could even “reshape trade flows across the world”, UNCTAD cautioned.
Geopolitical factors may also play a role in this change, as regional trade within Africa and within the Asia-Pacific area increases on the one hand, “diverting trade away from other routes”.
Similarly, efforts towards a more socially and environmentally sustainable economy may also affect international trade, by disincentivising high carbon products.
The need to protect countries’ own strategic interests and weaknesses in specific sectors could also influence trade in 2022, UNCTAD noted, amid a shortage of microprocessors called semiconductors that “has already disrupted many industries, notably the automotive sector”.
“Since the onset of the COVID-19 pandemic, the semiconductor industry has been facing headwinds due to unanticipated surges in demand and persisting supply constraints…If persistent, this shortage could continue to negatively affect production and trade in many manufacturing sectors.”
