THE world economy is heading for troubled waters, with recession in 2020 now a clear and present danger, said the United Nations Conference on Trade and Development (Unctad).
In its Trade and Development Report 2019, released today, Unctad said the warning lights are flashing around trade tensions, currency movements, corporate debts, a no-deal Brexit and inverted yield curves.
“There is little sign that policymakers are prepared for the storm ahead.”
The report called for focus to be trained on boosting jobs, wages and public investments, replacing policymakers’ obsession with stock prices, quarterly earnings and investor confidence.
It projected global growth to fall to 2.3% this year, from last year’s 3%.
Several emerging economies are already in recession, it said, while some advanced economies, including Germany and Britain, are dangerously close.
Trade growth is set to slow sharply this year to 2% from 2.8% due to weakening global demand, and compounded by tariffs imposed by the US.
Unctad said the bigger concern is that 10 years after the 2009 crisis, the global economy remains “excessively financialised and fragile”.
It said debt has become a dominant driver of global growth, but failed to deliver a surge in productive investment, fuelling financial speculation instead.
“In this environment, developing countries have seen debt transformed from a long-term financing instrument to help unleash their future growth potential, into a potentially high-risk financial asset, subject to the vagaries of international financial markets and proliferating short-term creditor interests.”
High number of govt-backed debts worrying, says Jomo
THE high number of debts guaranteed by the Malaysian government is a major concern as the people could eventually bear the consequences, said economist Prof Jomo Kwame Sundaram.
He said without parliamentary oversight, such debts have tripled in the last 10 years.
“Government guaranteed debt does not go through parliament. It does not require parliamentary approval but that doesn’t mean the Malaysian public do not have to bear the consequences of the government guaranteed debts,” he said, yesterday at the launch of the United Nations Conference of Trade and Development (Unctad) Report 2019.
Jomo said apart from the government’s direct debts, Malaysians are also likely to be affected by the debts of government-linked companies.
He said the rise of corporate debt must commensurate with development growth..
“One of the things we need to try to ensure is that the growth in corporate debt actually contributes to development.
“But you find that the increase in private corporate debt may have very little contribution to development,” he said.
He said it is insufficient to just regulate the banks as there are many ways for debts to accrue in the era of globalisation where the distinctions between merchant and commercial banks have been blurred bythe emergence of universal banking and the digital economy.
“You have universal banking and you have all kinds of financial institutions which are also called shadow banks and these are also very, very poorly regulated.
“So Bank Negara does not regulate these institutions very effectively and likewise many other central banks in the world do not regulate them.”
The 2019 Unctad Report meanwhile revealed that debt, traditionally perceived to be a long-term financing instrument to spur future growth potential in developing countries, was now a potentially high-risk financial asset.
The yearly report by the Unctad secretariat found that although debt was an important driver of global growth in the era of hyper-globalisation, it failed to deliver a strong surge in productive investments and instead fuelled financial speculation.
“In this environment, developing countries have seen debt transformed from a long-term financing instrument to unleash their future growth potential into a potentially high-risk financial asset subject to the vagaries of international financial markets and proliferating short-term creditors interests,” it said.
Developing countries will need about US$2-3 trillion (RM8-12 trillion) per annum to meet the most basic of UN sustainable development goals in time, it said.
Taking 30 developing countries as a sample, the report noted such nations of various income levels could see their debt to gross domestic product (GDP) ratio rise to 185% on average by the time the SDG expires in 2030, just to meet the first four goals and given there is flagging multilateral support.
Otherwise these countries will have to chalk up average GDP growth of 12% just to meet the first four SDGs, which are to eliminate poverty and promote nutrition, good health and quality education.