The global economy is contending with many significant disparities, according to an UNCTAD study

By
Kate Jones,

With the world coming to terms with the effects of volatile monetary flows and intensifying tariffs on trade, deeper-rooted problems have slipped under the radar, according to a United Nations Conference on Trade and Development (UNCTAD) study. Dr Mukhisa Kituyi, secretary-general of the UNCTAD, has pointed to a failure to address the injustices and disparities of a “hyperglobalised world”, which have been causing damage to world stability since 2008.

Dr Kituyi says in the foreword of UNCTAD’s Trade and Development Report 2018: Power, Platforms and the Free Trade Delusion:

“The immediate pressures are building around escalating tariffs and volatile financial flows but behind these threats to global stability is a wider failure, since 2008, to address the inequities and imbalances of our hyperglobalised world.”

Discussing the document’s findings on CNBC Africa, UNCTAD senior economist in the division on globalisation and development strategies Dr Diana Barrowclough explains: “We’re talking about imbalances in economic power, particularly caused by concentration. Trade is becoming a big firm gain rather than a country gain, and one of the things that we’re seeing is this ongoing anxiety in the global economy … and the sense of unease in the global economy, because many countries have not got the benefits from trade they expected.”

Growth matched by debt

According to the report, world output has grown this year — the document marked 2018’s annual percentage change in world output growth at 3.1 — but growth is still spasmodic, the study says, and the mountain of debt is growing too. Dr Kituyi notes that world debt is more than treble the size of global output. This increasing amount of debt symbolises the failure to tackle the hyperglobalised world’s disparities and inequities, he claims.

We’re talking about imbalances in economic power, particularly caused by concentration

“While the public sector in advanced economies has been obliged to borrow more since the crisis, it is the rapid growth of private indebtedness, particularly in the corporate sector, which needs to be monitored closely; this has, in the past, been a harbinger of crisis,” Dr Kituyi says. “The growing indebtedness observed globally is closely linked to rising inequality. The two have been connected by the growing weight and influence of financial markets, a defining feature of hyperglobalisation.”

Dr Kituyi explains that before the 2008 financial crisis, banks that were considered too large to fail came to epitomise regulators’ “reckless neglect”. However, financial organisations’ capacity to rig markets survived the early reform rush in the crisis’ aftermath, and efforts are being undertaken to push back on even the limited regulations that have been implemented. He added that lead firms’ ability in global production networks to capture more of the value added has led to uneven trading relations even as developing nations have increased their world trade participation.

The study also states that many nations are operating below potential and that this year is unlikely to witness a gear change regarding both this and fitful growth. Since 2008, many advanced countries have chosen external sources of growth over domestic ones (most noticeably with the euro area’s move from a deficit to a surplus region). However, the report claims that this can only work by tapping into the domestic demand of other nations, and among states that rely on this concept, too many are depending on a mix of greater debt and asset bubbles instead of increasing wages. Either way, “the ever-present threat of financial instability” is hampering growth.

Silver linings?

Good news comes in the form of the fact that the larger emerging economies are doing better this year and that exporters of commodities can anticipate an improvement while prices stay firm. The Russian Federation aside, growth in the other four BRICS nations – Brazil, India, China and South Africa – greatly relies on domestic demand. Yet, for many other emerging economies, that is not the case, and with downside risks increasing and financial fault lines getting wider in several nations, the report sees economic storm clouds gathering. Currently, the debt stock stands at $250tr, which is 50% higher than that during the financial crisis. The report claims that private debt, particularly corporate debt, has been the reason for this borrowing surge but without stimulating business investment, and this apparently constitutes “a disconnect that spells trouble ahead”. Even as advanced economies have not done enough to rebalance the global economy, there are fears that their “normalising” monetary policies could put new shockwaves through capital and currency markets, and a “vicious economic spiral” in more vulnerable economies is already appearing possible.

As for the technological realm, Dr Kituyi notes that the digital world has “bucked the gloomier post-crisis trend and is opening up new growth opportunities for developing countries”. However, in his eyes, “the worrying spirit of monopoly risks distorting outcomes”, and within rebalancing the economy of the world, getting to grips with the policy and regulatory challenges posed by this factor needs to be an integral component.

He concludes in his foreword that pressures both new and old “are weighing down on multilateralism”.

“In our interdependent world, inward-looking solutions do not offer a way forward; the challenge is to find ways to make multilateralism work for all and for the health of the planet,” he argues. “There is much to be done.”

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