A decade ago – when the global financial crisis broke out – the deficit was $140 trillion.
“Overreliance on debt in today’s global economy will not end well for many economies,” said Richard Kozul-Wright, Director of UNCTAD’s Globalization and Development Strategy division.
Despite these potentially worrying indicators, by the end of 2018 global production is expected to remain unchanged from last year, at 3.1 percent, UNCTAD says.
And while the global economy has “bounced back” overall since 2017, at the regional level economic growth has been sporadic, according to the UNCTAD report.
“The global economy walks a tightrope between debt-fueled growth and financial instability,” Kozul-Wright said. “There certainly has been a recovery in the United States. The question is whether it is an economic rush driven by tax cuts and military spending, or whether there is sustainable growth behind it. We tend to think it is the former.”
Noting that the performance of the US economy has been “much better” than that of most of Europe, where growth is “softening” across the continent, the UNCTAD senior economist said Japan had also shown a “rather weak performance” that has been reflected in a significant number of larger emerging economies threatened by recession.
The global economy walks a tightrope between debt-fueled growth and financial instability. Richard Kozul-Wright, UNCTAD
According to the UNCTAD report, the largest emerging economies that depend on commodity exports (Russia and the four BRICS countries: Brazil, India, China and South Africa) can expect some improvement “as long as prices remain firm.”
But this is not the case in many other developing economies where “economic storm clouds” are gathering, UNCTAD says, pointing to the fact that their share of global debt rose from 7 percent in 2007 to 26 percent this year.
Private and corporate debt is behind this increase in borrowing, but it has not been used to invest in companies, so “the growing debt seen globally is closely related to rising inequality,” Kozul-Wright said.
Regarding trade tensions, the UNCTAD report suggests that any serious escalation of tariff increases imposed by the United States, China and the eurozone could threaten much-needed investments in vulnerable economies.
The fact that large companies account for more than half of exports is also linked to the decline in returns in emerging countries (with the exception of the newly industrialized economies of Asia and China).
“Trade is a big business game,” Kozul-Wright explained. “More than 50 percent of world trade is carried out by 1 percent of corporations. Big business has been a major source of inequalities. It’s about the growing power of monopolies and concentrated markets.”
One sign of China’s prolific growth is its growing share of exports in the BRICS group of nations, which rose from 5 percent in 1990 to more than 20 percent in 2016, UNCTAD says.
The UN report also notes that among developing economies, only those in East Asia host to a significant degree the headquarters of major transnational companies.
This has led East Asia to see its share of the profits generated by the world’s top 2,000 transnationals rise from 7 percent in 1995 to more than 26 percent in 2015.
“The global economy is once again under pressure,” said Mukhisa Kituyi, Secretary-General of UNCTAD. “Immediate pressures are building around escalating tariffs and volatile financial flows, but behind these threats to global stability is a broader failure – since 2008 – to address the inequalities and imbalances of our hyper-globalized world.”
Despite the likelihood of economic stability this year, the report warns of a possible economic downturn in the near future.
There is an urgent need for governments to work together on global policy coordination to better manage the multilateral trading system, said UNCTAD’s Kozul-Wright.