Trade and Development Report 2023

Trade and Development Report

Growth, debt, and climate: Realigning the global financial architecture

UNCTAD’s Trade and Development Report 2023 warns that the global economy is stalling, with growth slowing in most regions compared with last year and only a few countries bucking the trend.

It says the global economy is at a crossroads, where divergent growth paths, widening inequalities, growing market concentration and mounting debt burdens cast shadows on the future.

The prospect of meeting the Sustainable Development Goals (SDGs) by 2030 is fading as a combination of rising interest rates, weakening currencies and slowing export growth squeezes the fiscal space needed for governments to fight climate change and provide for their people.

The report calls for a change in policy direction – including by leading central banks – and accompanying institutional reforms promised during the COVID-19 crisis to avert a lost decade.

It urges global financial reforms, more pragmatic policies to tackle inflation, inequality and sovereign debt distress, and stronger oversight of key markets.

The report proposes actions to get the global economy moving in the right direction by using a balanced policy mix of fiscal, monetary and supply-side measures to achieve financial stability, boost productive investment and create better jobs.

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To safeguard the world economy from future systemic crises, we must avoid the policy mistakes of the past and embrace a positive reform agenda.
UNCTAD Secretary-General
Rebeca Grynspan

Global growth is stalling

as inequalities widen

The report projects world economic growth to slow from 3% in 2022 to 2.4% in 2023 with few signs of a rebound next year. It says most regions will see a significant slowdown.

While Brazil, China, Japan, Mexico and Russia will buck the trend, they are not expected to grow strongly.

Inflation has come down from the highs of late 2022, but it’s a slow and halting descent, largely due to the easing of supply-side pressures.

Tighter monetary policy has so far contributed little to ease prices and has come at a steep cost in terms of inequality and damaged investment prospects.

Meanwhile, the cost of living and insufficient wage growth continue to squeeze household budgets everywhere.

Economic inequality remains a significant challenge, with developing countries disproportionately affected, including by the effects of monetary tightening in the advanced economies. This widening wealth gap further threatens to undermine the fragile economic recovery and the aspirations of nations to meet the sustainable development goals (SDGs).

UNCTAD calls for

  • 1
    A more balanced policy mix of fiscal, monetary and supply-side measures to achieve financial stability, boost productive investment and create better jobs.
  • 2
    Reform of central banks’ mandates to move beyond inflation-targeting to balancing the priorities of monetary stability with long-term economic sustainability.
  • 3
    Greater policy coordination through multilateral institutions, particularly to mobilize resources for countries in a position to deliver faster growth.

Major economies are building back

weaker and separately

The report highlights that globally the post-pandemic recovery has been divergent, raising concerns about the way forward in the context of slower growth and no policy coordination.

The United States economy has confounded more negative predictions and is heading for a softer landing than many expected at the start of the year, thanks to a combination of mild fiscal expansion and a return to mild quantitative easing, which has kept unemployment low and consumer spending high.

However, the report warns of lingering investment concerns in the country, especially in light of prolonged high interest rates.

On the other side of the Atlantic Ocean, Europe is on the edge of recession. The region is grappling with a rapid tightening of monetary policy and strong economic headwinds, with major economies slowing down and Germany already contracting.

Stagnant or falling real wages across the continent, compounded by fiscal austerity, are dragging down growth. Inflationary pressures remain more pronounced than in the United States.

China has picked up this year and will grow more than 10 times faster than the eurozone, albeit not as fast as expected during its first year of post-COVID-19 lockdown recovery. The country faces weak domestic consumer demand and private investment but has more fiscal policy space than other large economies to address these challenges.

UNCTAD calls for

  • 1
    Abandoning of austerity measures globally, which led to a decade of lost growth after the global financial crisis.
  • 2
    European policymakers to soften their stance on austerity to boost demand-led growth.
  • 3
    All countries to prioritize policies on reducing inequality and increasing real wages, with concrete commitments towards comprehensive social protection.
  • 4
    Strengthening of capital account management to counter the destabilizing effects of global financial flows, which reduce policy space for social protection, investment and job creation.

Debt burdens are crushing

many developing countries

The report underscores that debt burdens, the silent weight on many developing countries, remain a major concern.

A combination of rising interest rates, weakening currencies and sluggish export growth is squeezing the fiscal space needed for governments to deliver essential services, transforming the growing debt service burden into an unfolding development crisis.

Some 3.3 billion people — almost half of humanity — now live in countries that spend more on debt interest payments than on education or health.

The countries hit hardest are the low- or lower-middle-income developing countries – or “frontier market economies” – that started to tap international capital markets after the global financial crisis.

Over the past decade, external public and publicly guaranteed (PPG) debt in these economies has tripled. This trend was turbocharged by the compounding shocks of the pandemic and climate change.

As a result, the PPG debt service payments as a percentage of government revenue surged for these countries from nearly 6% in 2010 to 16% in 2021, diverting resources away from critical SDGs.

Now, nearly a third of frontier economies are on the precipice of debt distress. They face escalating credit risks, with soaring bond spreads, credit rating downgrades to CCC or lower, and a rising number inching towards default.

Restricted market access represents a severe threat for these countries, as bond repayments are set to increase sharply in 2024 and 2025.

UNCTAD calls for

  • 1
    Meaningful reforms of the rules and practices of the international architecture to ensure reliable access to long-term finance in developing economies.
  • 2
    Mobilization of financing for developing countries that extends investment horizons and reinforces their industrial capacities, clean energy production and ability to create jobs.
  • 3
    A sovereign debt restructuring mechanism that deals with debt crises in a timely, fair and orderly manner.

More transparent, regulated markets are

needed for a fairer trading system

The report highlights how market concentration in key sectors, such as the trading of agriculture commodities, has grown since 2020, deepening the asymmetry between the profits of top multinational enterprises and declining labour share globally.

It finds that unregulated financial activity significantly contributed to the profits of global food traders in 2022.

Corporate profits from financial operations appear to be strongly linked to periods of excessive speculation in commodities markets and to the growth of shadow banking – an unregulated financial sector that operates outside traditional banking institutions.

During the period of heightened price volatility since 2020, certain major food trading companies have earned record profits in the financial markets, even as food prices have soared globally and millions of people faced a cost-of-living crisis.

Food trading companies take positions and function as key participants in financial markets, but this shadow banking function is not regulated in the current financial system.

Patterns of profiteering in the food trading industry reinforce the need to extend systemic financial oversight and consider corporate group behaviour within the framework of the global financial architecture.

UNCTAD calls for

  • 1
    A strategic use of agricultural buffer stocks to help avert a global food security crisis.
  • 2
    A systemic approach to regulating commodity trading generally, and food trading in particular, within the framework of the global financial and trading architecture.