UNCTAD projects 2023 global growth to fall below pre-pandemic levels

Global economic growth in 2023 is expected to drop to 2.1% compared to 3.1% in 2022, with the risks strongly on the downside amid slowing global growth and rising interest rates, according to a new report.

The United Nations Conference on Trade and Development (UNCTAD) in its Trade and Development Report Update released April 12, 2023 projects that annual growth across large parts of the global economy will fall below pre-pandemic levels in 2023.

It adds that global growth is expected to be lower than the 2.2% projected in September 2022, signaling potential economic downturn.

UNCTAD further warns that developing countries are facing years of difficulty as the global economy slows down amid heightened financial turbulence.

High interest rates combined with soaring debt levels will add to the “crushing” effect on developing countries over the coming years, to the tune of at least US$800 billion.

The UN body says this will “further deepen the cost-of-living crisis that their citizens are currently facing and magnify inequalities worldwide.”

Public investment in developing countries will continue to suffer as countries pay more to their external creditors than they receive in new loans.

The report highlights that food inflation remains rampant in developing countries in early 2023, contributing to a high cost of living.

This echoes the latest assessment of the UN Food and Agriculture Organization, which said that despite 12 consecutive months of decreases as of March 2023, global food prices remain 30% higher today compared to the average level observed in 2020, and many low and middle-income countries are experiencing double-digit food price inflation.

UNCTAD further warns that high interest rates and inflated food and energy prices will continue to weaken household spending and business investment.

In terms of regional prospects, East Asia’s GDP growth declined sharply to 2.6% in 2022, following a rebound of 6.4% in 2021. Following changes in the Chinese zero-COVID strategy, regional economic activity is expected to expand moderately at a rate of 3.9% in 2023.

South Asia registered growth of 5.7% in 2022; however, the stark rise in already high poverty rates has not abated yet. UNCTAD expects the region to expand at a still fast pace of 5.1% in 2023, driven by the growth of its largest economy, India.

In Southeast Asia, the economy expanded by 5.4% in 2022. In 2023, growth in the region is expected to decelerate to 4.1% due to sluggish growth of global trade and continued monetary tightening in advanced economies.

Meanwhile, growth of global merchandise trade reached 2.7% in 2022. This confirms that the 9.4% boom registered by trade in 2021 was short-lived and partly due to a low base effect, states the report.

Although the annual growth of world trade was positive last year, on a monthly basis, international trade saw declining patterns across the board during the second half of 2022 and especially during the last quarter.

In volume terms, global trade was down 2% quarter-on-quarter during the fourth quarter of 2022, while in dollar terms, the decline was almost twice this rate, because key commodity prices continued receding from their peak of the second quarter.

This downward trend partly resulted from difficult supply conditions owing to the delicate COVID-19 situation in China before the country started to relax its pandemic restrictions. Also, manufacturers and distributors worldwide tried to reduce excess inventories after over-ordering due to the supply chain disruptions in 2020 and 2021.

Over the course of 2023, trade is expected to initially pick up as the inventory cycle normalizes and the rebound of China’s economy and global supply chain conditions in many key markets continues, although relatively mildly.

Yet world trade is facing several headwinds, warns UNCTAD. Weaker economic activities worldwide will inevitably result in feebler external demand, and thus subdued international trade.

Tighter financial conditions will also affect primarily investment, and continuing trade conflicts between China and the United States or Europe will be other drags on trade.

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