The UN Conference on Trade and Development projects that the global economy will contract by 4.3% in 2020 due to the COVID-19 pandemic.
COVID-19 has hit vulnerable populations and sectors hardest, with economic and social impacts felt most severely in least developed countries, sub-Saharan Africa, and South Asia.
A “perfect storm” of converging technology and trade trends exacerbated the pandemic’s impact on global production systems, but governments’ action on trade policy can serve as a catalyst for a fair and green recovery.
A report by the UN Conference on Trade and Development (UNCTAD) warns that, despite growing confidence that the end of the COVID-19 pandemic is near, the economic fallout will continue. The report projects that the global economy will contract by 4.3% in 2020, and provides a comprehensive assessment of the economic knock-on effects from COVID-19.
The report titled, ‘Impact of the Pandemic on Trade and Development,’ underscores that COVID-19 has hit vulnerable populations and sectors hardest, and that economic and social impacts have been felt most severely in structurally weak developing countries, with those in Africa, least developed countries (LDCs), and small island developing States (SIDS) grappling with the most drastic impacts. The report finds that more than 68.5 million people have been pulled into extreme poverty, with the vast majority coming from LDCs, sub-Saharan Africa, and South Asia.
According to an UNCTAD news release, progress towards the SDGs will be derailed without immediate policy actions in favor of the poorest and most vulnerable to offset not just the uneven impacts of the pandemic, but also countries’ uneven ability to respond and recover.
The report also examines the gendered effects of the pandemic, COVID-19’s impacts on migrant workers, and the struggles of micro-, small and medium-sized enterprises (MSMEs) amidst shutdown response measures. Larger firms, the report finds, experienced smaller decreases in demand for products, supply of inputs, and cash flow availability. To support businesses and entrepreneurship, the report highlights UNCTAD’s technical cooperation programmes as helping countries put in place the policies, regulations, and institutional frameworks needed to mobilize the resources that can help vulnerable countries and groups recover from the pandemic.
Trade can serve as a catalyst for a fairer and greener recovery.
Analyzing the financial support developing countries’ will need to respond to and recover from the pandemic, the report focuses on three main areas: official development assistance (ODA); work remittances; and external public debt. While all countries have had to increase budgetary outlays to help protect their populations from both the health and economics impacts of COVID-19, developing countries’ “access to additional external finance may have become even more limited than usual.” The report notes that larger developing countries tend to receive the greatest ODA inflows, but that “smaller, more vulnerable economies … top the list of most aid-dependent countries.” For those reliant on income from remittances – which tend to be less volatile then other external sources of financing – the report projects a 20% decrease for 2020 relative to 2019, and working hour losses in the second quarter equivalent to over 400 million full-time jobs worldwide.
Regarding COVID-19’s impact on global production systems and international trade, the report describes a “perfect storm” of trends converging in 2020 – new technologies, rising protectionist tendencies, and changing economics of and new hurdles for international production colliding with immediate supply chain disruptions, the global recession, and longer-term pressure to increase national or regional autonomous productive capacities. However, despite many governments’ measures to restrict trade in light of the pandemic, the report argues that the World Trade Organization’s (WTO) Agreement on Trade Facilitation provides governments “with a sound basis for facilitating international trade flows.”
The report further argues that trade can serve as “a catalyst for a fairer and greener recovery.” Recognizing international trade as a “transmitter” of market disruptions around the globe (e.g. through reductions in export earnings) and its role in disproportionately affected those with limited market power (e.g. MSMEs and entrepreneurs), the report emphasizes that unilateral trade measures exacerbated supply shortages. The report underscores that it is possible to design policies that achieve a resilient global economy not through closed borders, but through diversified origin and destination of markets. It calls on governments to implement trade policies that enable the world to build back better by:
- enhancing transparency of trade measures;
- increasing trade cooperation to address global health crises; and
- making good use of the multilateral trading system (MTS).
The report calls on countries to implement policies around competition and consumer protection to ensure a fair and inclusive recovery. It recommends:
- empowering competition authorities to prevent market concentration, likely to increase in the post-COVID-19 “new normal”;
- enhancing regional and international cooperation against anticompetitive practices; and
- preventing market concentration in the digital economy.
To ensure a green recovery and decouple rebounding growth from carbon emissions, the report recommends that countries increase incentives to renewable energy, promote nature-based solutions, and propose new economic measures that have “green strings attached.” [Publication: Impact of the Pandemic on Trade and Development] [UNCTAD News Release]