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Trade and Development Report 2020 UNCTAD UNITED NATIONS CONFERENCE ON TRADE AND DEVELOPMENT TRADE AND TRADE AND DEVELOPMENT DEVELOPMENT REPORT 2020 FROM GLOBAL PANDEMIC TO PROSPERITY FOR ALL: REPORT 2020 AVOIDING ANOTHER LOST DECADE UNITED NATIONS UNITED NATIONS CONFERENCE ON TRADE AND DEVELOPMENT TRADE AND DEVELOPMENT REPORT 2020 FROM GLOBAL PANDEMIC TO PROSPERITY FOR ALL: AVOIDING ANOTHER LOST DECADE Report by the secretariat of the United Nations Conference on Trade and Development UNITED NATIONS Geneva, 2020 © 2020, United Nations All rights reserved worldwide Requests to reproduce excerpts or to photocopy should be addressed to the Copyright Clearance Center at copyright.com. All other queries on rights and licences, including subsidiary rights, should be addressed to: United Nations Publications, 300 East 42nd Street, New York, New York 10017, United States of America Email: [email protected] Website: shop.un.org The designations employed and the presentation of material on any map in this work do not imply the expression of any opinion whatsoever on the part of the United Nations concerning the legal status of any country, territory, city or area or of its authorities, or concerning the delimitation of its frontiers or boundaries. This publication has been edited externally. United Nations publication issued by the United Nations Conference on Trade and Development. UNCTAD/TDR/2020 Sales No. E.20.II.D.30 ISBN: 978-92-1-112992-2 eISBN: 978-92-1-005269-6 ISSN: 0255-4607 eISSN: 2225-3262 Foreword Covid-19 has served as a reminder that we live in a closely interdependent world that brings opportunities but also carries dangers. It has, just as importantly, shed light on a whole series of pre-existing conditions – from heightened inequality, to unsustainable debt and rampant environmental destruction – that were left unaddressed after the Global Financial Crisis. The world at the end of 2019 was, in truth, a good deal more fragile than many were willing to acknowledge. As a result, Covid-19 obliges us to think carefully about what makes for healthy and resilient communities, at the global level as much as the local level and take to heart the lessons we have learned in the last decade. This year is shaping up to be a very difficult year for the global economy. With many countries unprepared to respond to a health pandemic, lockdown seemed to be the only plausible way to protect lives and preserve health systems. Doing so triggered an economic crisis that spread as quickly as the virus itself. Data for the first two quarters of this year show output contracted more sharply than in 2008-2009, and in some cases registering the steepest drop on record. Estimates for the year point to a generalized global recession matching the Great Depression of the 1930s. Next year will likely see a rebound. However, it will be uneven within and across countries and uncertainty will persist. Unemployment will be on an upward trend, more and more companies will be facing the threat of bankruptcy; supply chains will be fragile; confidence will be shaken; demand will be weak. Debt levels across the world, in both the public and private sectors, will have risen significantly from the historically high levels registered before the crisis. In this condition, the wrong policy steps – and ignoring the experience of the last decade – could trigger further shocks which would not only derail recovery but could usher in a lost decade. These threats are greatest in the developing countries where the ability to respond to the crisis, on both the health and economic fronts, has been hampered by years of austerity combined with massive debt servicing, high levels of informality and policy space constricted by the rules we’ve chosen to manage globalisation. To date, the international community has not matched its expression of concern with commensurate support and action. Multilateralism was already under stress before the crisis, but Covid-19 has highlighted the need for frank discussion and bold proposals that match the ambition shown when the global system was founded. This year’s Trade and Development Report argues that the global economic crisis caused by Covid-19 throws up a stark choice: continue misguided policy choices or collectively chart a new path that leads from recovery to a more resilient, more equal and more environmentally sustainable world in line with the ambition of the 2030 Agenda for Sustainable Development. Neither path is preordained. Building a better world is a matter of conviction and collective action. The lives of future generations and of the planet itself will depend on the choices we all take over the coming months. Mukhisa Kituyi Secretary-General of UNCTAD iii TRADE AND DEVELOPMENT REPORT 2020 FROM GLOBAL PANDEMIC TO PROSPERITY FOR ALL: AVOIDING ANOTHER LOST DECADE Contents Foreword .................................................................................................................................................... iii Explanatory notes .......................................................................................................................................ix Abbreviations ...............................................................................................................................................x OVERVIEW .......................................................................................................................................... I–XII Chapter I TRENDS AND CHALLENGES IN THE GLOBAL ECONOMY .......................................................... 1 A. Introduction ............................................................................................................................................ 1 B. The world economy in 2021: Through a glass darkly ......................................................................... 1 C. Mighty crises from little pathogens grow: The impact of the Covid-19 shock ................................. 4 1. Private sector debt: Another crisis brewing? ...................................................................................... 7 D. Policy responses to Covid-19 ............................................................................................................... 12 E. From disaster-relief to economic reconstruction ............................................................................... 15 F. Trade in goods and services ................................................................................................................. 19 G. Commodity prices ................................................................................................................................ 21 H. Capital flows and exchange rates ....................................................................................................... 24 1. Covid-19, defunct economists and changing mindsets .................................................................... 26 J. Regional trends ...................................................................................................................................... 28 Notes ........................................................................................................................................................... 30 Chapter II GLOBAL DEMAND AND GROWTH DILEMMAS AFTER COVID-19 ............................................ 35 A. Introduction: a world economy unprepared for a major shock ...................................................... 35 B. The main sources of demand growth and their financial implications ............................................ 36 1. State-led demand and fiscal burdens revisited .................................................................................. 36 2. Growth of demand, private (dis-)savings and financial instability ................................................... 38 3. Net external demand is not a reliable global growth driver ............................................................. 39 4. The configuration of global demand drivers in practice ................................................................... 40 C. The post-Covid-19 baseline: a ‘lost decade’ ...................................................................................... 43 1. The starting hypothesis: a shift to fiscal austerity ............................................................................. 43 2. The immediate implications of austerity: protracted unemployment and wage compression ......... 44 3. The macroeconomic outcomes of a protracted slowdown post-pandemic ....................................... 44 D. A growth revival scenario to avert a lost decade: policies and outcomes ....................................... 48 1. The indispensable strong push for growth ........................................................................................ 48 2. The environment matters for growth ................................................................................................ 49 3. The other global common goods: development and external financial balances ............................. 51 4. Tuning the growth impulse and related financial and policy challenges .......................................... 52 Notes ........................................................................................................................................................... 54 References .................................................................................................................................................. 55 Annex: Derivation
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