UN Trade and Development (UNCTAD) calls for urgent policy shifts to reverse rising inequality, stagnant wages, and jobless growth, particularly in developing countries.
UN Trade and Development (UNCTAD) projects global economic growth to stagnate at 2.7% in 2024 and 2025, marking a sustained drop from the 3% annual average seen between 2011 and 2019 and well below the 4.4% average in the years before the 2008 financial crisis.
The organization’s Trade and Development Report 2024 warns that this new “low normal" growth is insufficient to tackle pressing development and climate goals or help ease widespread discontent amidst a global cost-of-living crisis that has left many households in vulnerable positions.
While the global South experienced robust annual growth rates of 6.6% between 2003 and 2013, that figure has fallen to 4.1% over the past decade, making it harder for nations to expand social services, cover rising energy transition costs and manage mounting public debt. Excluding China, the economies of the global South have grown at 2.8% on average for the past decade.
High interest rates in advanced economies and depreciating currencies in developing countries are driving up the cost of foreign debt, forcing many governments to redirect export earnings away from development and toward debt payments.
A shift in the structure of global trade
Another key issue is trade’s stalling growth relative to GDP. Between 1995 and 2007, trade grew at twice the rate of global GDP, but since the 2008 financial crisis, that momentum has stalled. In 2023, for the first time in history, merchandise trade contracted (-1.2%) despite global economic growth.
Meanwhile, services are emerging as a potential growth engine, expanding at 5% annually and now accounting for 25% of global trade by 2022.
While this shift brings promise, it also carries risks for global inequalities. Developing countries account for less than 30% of global services export revenues.
The uneven playing field is clear in the creative services sector, valued at $1.4 trillion in 2022, where advanced economies account for 80% of exports. The growing importance of intangible assets like brands, software, data and patented technologies in global supply chains heighten the risks further. In 2023, investment in intangible assets grew three times faster than physical assets, reaching $6.9 trillion.
Urgent reforms needed to get on the right track
The report calls for urgent policy shifts to reverse rising inequality, stagnant wages, and jobless growth, particularly in developing countries. Traditional manufacturing-led growth is no longer sufficient, and while the services sector is growing, it has not been able to generate enough quality jobs.
Key recommendations include:
- Adopt a balanced approach to inflation. The report warns that prolonged monetary tightening to curb post-pandemic inflation has only been partially effective and has exacerbated economic challenges. It advocates for a mix of fiscal, monetary and regulatory policies to address inflation, including efforts to curb anti-competitive practices and reduce corporate concentration.
- Implement comprehensive debt reforms. UNCTAD proposes reforms across the debt cycle to reduce risks and vulnerabilities in developing countries.
- Diversify economies. Addressing inequality and jobless growth requires industrial policies that promote diversification beyond manufacturing and consider environmental, financial and technological shifts.
- Foster regional trade and integration. Leveraging agreements like the African Continental Free Trade Agreement (AfCFTA) and ASEAN Economic Community can help developing countries build more resilient economies.
- Prioritize labour-complementing technologies. Encourage companies to invest in technologies that enhance productivity without displacing workers, particularly in low-skill sectors.
A call for action
The Trade and Development Report 2024 warns that without bold action, the gap between rich and poor nations will continue to grow, worsening global inequalities, increasing social unrest, and making it harder to combat climate change.
Developing countries need global support to navigate these challenges, but they must also take the lead in diversifying their economies, adopting new technologies, and building resilience in the face of mounting economic, social, and environmental risks.
Global leaders cannot afford to miss this opportunity to rethink and reshape the world economy for a more equitable and sustainable future.