The East and Southeast Asia region is expected to experience growth rates below the growth rate in the five years before the pandemic.
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The United Nations has issued a warning that the world is on the “edge of recession” and that developing countries like those in Asia may bear the brunt of it.
The United Nations Conference on Trade and Development (UNCTAD) said that fiscal and monetary policies in advanced economies – including further interest rate hikes – could push the world towards a recession. global recession and stagnation.
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A global recession is likely to cause worse damage than the 2008 financial crisis and the Covid-19 shock in 2020, UNCTAD warns in Trade and Development Report 2022.
“All regions will be affected, but alarm bells are ringing mostly in developing countries, many of which are nearing default,” the report said.
We still have time to step back from the brink of recession. Nothing is inevitable. We have to change direction.
Rebecca Grynspan
UNCTAD Secretary General
UNCTAD says Asian and global economies are on the brink of recession if central banks continue to raise interest rates without using other tools and considering supply-side economics, UNCTAD added. the desired soft landing is unlikely.
“Today, we need to warn that we may be on the verge 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 must change course.”
“We then called for a more pragmatic policy mix, the introduction of strategic price controls, income taxes, anti-trust measures and stricter regulations on commodity speculation. . I repeat, a more pragmatic policy mix… we also need to do more to end commodity price speculation.”
Influencing Asia
According to the UNCTAD report, the prognosis is poor throughout the region.
A US interest rate hike this year will cut about $360 billion in future income for developing countries excluding China, while net capital flows to developing countries have turned negative.
In fact, developing countries are financing developed countries.
“Rising interest rates in advanced economies are hitting the most vulnerable the hardest. Around 90 developing countries have seen their currencies weaken against the dollar during the year. now.”
East and Southeast Asia are expected to post growth rates below the growth rates in the five years before the pandemic. UNCTAD expects East Asia to grow at 3.3% this year, compared with 6.5% last year.
Expensive imports and reduced global export demand as well as a slowdown in China will also put additional pressure on that region, the report said.
Debt is growing in South and West Asia. Sri Lanka has fallen into sovereign default, Afghanistan remains in debt, and Turkey and Pakistan face rising bond yields.
Pakistan reeling from floodsand are incurring increasing debt and decreasing foreign exchange reserves.
Focusing solely on a monetary policy approach – without addressing supply-side problems in trade, energy and food markets – could actually exacerbate the cost-of-living crisis.
A new note by Capital Economics on Tuesday echoed UNCTAD’s findings.
It said the latest Global Manufacturing Purchasing Managers’ Index – a measure of industrial activity – showed that global industries “have weakened significantly and are expected to perform worse in months to come when high inflation and rising interest rates take their toll.”
It’s worth noting that this spare capacity should ease global shortages and ease price pressures, said Simon MacAdam, senior global economist at Capital.
This situation is the result of a rush to fix interest rates after years of extremely low levels while global policymakers were unable to contain inflation during that time or generate healthier economic growth. , UNCTAD adds.
“Focusing on just one monetary policy approach – without addressing supply-side issues in trade, energy and food markets – could make a real cost-of-living crisis,” UNCTAD said. exacerbating”.
“Under current supply chain challenges and increased uncertainty, where monetary policy cannot safely reduce inflation, pragmatism will need to supplant ideological congruence in guiding the next policy moves.”
UNCTAD recommends that countries consider overdue wage increases and continue to create jobs.
More public investment is also needed in economic and social infrastructure to promote jobs, improve productivity, improve energy efficiency and reduce greenhouse gas emissions.
Governments should consider tax reform, the report said, including more tax breaks and revenues, reducing cuts and regressive tax loopholes, and curtailing corporate tax havens. and wealthy individuals, the report said.
