UN: Global economy facing biggest hit since Great Depression

Special to WorldTribune.com

By John J. Metzler

Massive worldwide economic disruptions and setbacks continue as the COVID-19 pandemic sweeps the globe, devastating commerce, industry and people’s livelihoods.  And even with modest economic gains expected this year in many developed countries, the virus and vaccines to counter COVID will ultimately set the agenda for success or failure.

That’s the gloomy outlook from the UN’s World Economic Situation and Prospects, an annual forecast of economic conditions.

“In 2020, the world economy shrank by 4.3 percent, over two and half times more than during the global financial crisis of 2009. The modest recovery of 4.7 per cent expected in 2021 would barely offset the losses of 2020,” says the latest report.

“We are facing the worst health and economic crisis in 90 years,” said UN Secretary-General  António Guterres.

Venezuelans wait outside a soup kitchen run by nuns in Caracas. / AP

Ominously the survey adds, “A once-in-a-century crisis, a Great Disruption unleashed by a viral pandemic, hit the world economy in 2020.”  The report adds, “The pandemic spread like a forest fire, reaching every corner of the world, infecting more than 90 million and killing close to 2 million people worldwide.”

This is sobering data to think that after years of largely positive growth, eradication of poverty and growing global trade that the entire system would be jolted almost overnight by the COVID virus.  Sustained economic expansion in the United States and many East Asian states came to a halt from fear and uncertainty in the pandemic’s early stages.

The United Nations warned of devastating socio-economic setback from the still expanding  pandemic.  The report adds that 131 million more people were pushed into poverty in 2020, many of them women and children.

The World Economic Situation and Prospects cites, “Massive and timely stimulus measures, amounting to $12.7 trillion, prevented a total collapse of the world economy and averted a Great Depression…financing these stimulus packages entailed the largest peacetime borrowing, increasing public debt globally by 15 percent.”

The report cautions, “This massive rise in debt will unduly burden future generations unless a significant part is channeled into productive and sustainable investment and to stimulate growth.” A spiral of dangerous debt accumulation shadows even the richest countries.

The survey underscores, “while the majority of the stimulus spending went into protecting jobs and supporting current consumption, it also fueled asset price bubbles worldwide, with stock market indices reaching new highs.”

Global trade and investment have been traditional indicators of growth, until now.  But here too the past year has proven dismal both for developed countries and the developing world.

The survey states that global trade shrank by an estimated 7.6 percent in 2020 against the backdrop of massive disruptions in global supply chains and tourism flows.

Investment flows have dried up demonstrably.  Global foreign direct investment (FDI) collapsed in 2020, falling by 42 percent to an estimated $859 billion from $1.5 trillion in 2019.  According to the UN Conference on Trade and Development (UNCTAD), the declines were concentrated in developed countries where FDI flows fell by 69 percent to an estimated $229 billion.  Investment flows to Europe fell drastically and a serious decline was recorded in the United States with FDI cut by 49 percent down to $134 billion.

Equally foreign investment fell 37 percent in Latin America and the Caribbean, and 18 percent in Africa.

Significantly despite these ill winds, Japan saw a FDI surge from $15 billion to $17 billion!

On the other hand, China’s FDI while falling in the early stages of the pandemic, actually ended the year with a 4 percent increase!  India saw an even better rebound in foreign investment with a 13 percent increase mostly in the digital sector.  Yet, FDI across Southeast Asia in the ASEAN states saw a serious overall slip of 31 percent in investments.

UNCTAD predicts that 2021 FDI trends are expected to remain weak in 2021.

“The depth and severity of the unprecedented crisis foreshadows a slow and painful recovery,” stated UN Chief Economist Elliot Harris who added, “As we step into a long recovery the with the roll out of the vaccines against Covid 19, we need to start boosting longer term investments.”

But investments and renewed economic growth will follow only if safe and available vaccines promote the confidence to counter the dismal narrative of prolonged fear and recurring surrealistic economic lockdowns. Moreover, unless richer countries such as the U.S.  and Japan are able to serve as engines of growth, developing states may be left wanting.  Sadly, the pandemic is far from over, the virus is not yet conquered, and commercial rebound is not assured.

John J. Metzler is a United Nations correspondent covering diplomatic and defense issues. He is the author of Divided Dynamism the Diplomacy of Separated Nations: Germany, Korea, China (2014). [See pre-2011 Archives]