Global economy needs policy overhaul to move beyond sixth straight year of sluggish growth

21 September 2016

Getting the world economy back on track requires that global leaders use bolder macroeconomic policies, strengthened regulation of finance and active industrial policies, says UNCTAD Trade and Development Report.

The UNCTAD Trade and Development Report, says that economic slowdown in the advanced economies is the biggest drag on global growth, and that developing countries are now caught in the downdraft.

QuotePolicymakers all around the world face a difficult combination of sluggish investment, productivity slowdowns, stagnant trade, rising inequality and mounting levels of debt. Solutions require an ambitious rethink, not a tepid business-as-usual reaction.quote
Mukhisa Kituyi
UNCTAD Secretary-General


In many developed countries, a stringent fiscal stance and at times outright austerity have led to one of the weakest recoveries from an economic crisis on record. This has come on top of a prolonged period of slow wage growth, leading to insufficient household demand and weak spending on productive investment.

Growth in the United States of America is expected to slow to 1.6 percent this year, close to the Eurozone growth rate, while in Japan, growth continues to stagnate. In the United Kingdom of Great Britain and Northern Ireland, revived growth will be cut short by the decision by the United Kingdom of Great Britain and Northern Ireland to leave the European Union, or "Brexit", though it is still difficult to predict just how big the impact will be, and what - if any - will be the wider contagion effects.

The loss of economic momentum in the advanced economies is having knock-on effects on developing countries, which will grow on average less than 4 per cent this year, some 2.5 percentage points below the pre-crisis figure. Considerable regional variations mean that while Latin America is in recession, Asia continues with slower but steadier growth.

Slower growth in developing economies compounds concerns for the global economy. In 2016, global growth will likely drop below the 2.5 per cent figure registered in 2014 and 2015, and UNCTAD economists would not be surprised if it dropped further.

Global trade has slowed even more dramatically following a brief bounce from the depths of the global financial crisis, dropping to just 1.5 per cent this year, a full percentage point lower than world output; the Geneva-based body argues that the lack of global demand and stagnant real wages are the main problems behind the slowdown in international trade. But if policymakers fail to mitigate the negative impacts of unchecked global market forces, then a turn to protectionism could trigger a vicious downward cycle affecting everyone.