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UN urges policy overhaul amid economic slowdown

UNCTAD predictsglobal growth would slip to 2.3 per cent this year, down from 2.5 per cent in 2014 and 2015

Published: Updated:

The UN called on Wednesday for radical policy overhauls to fix a stuttering global economy, warning that low growth, joblessness and soaring inequality were spawning dangerous political populism.

“The world economy in 2016 is in a fragile state,” the United Nations Conference on Trade and Development (UNCTAD) said in a report which predicted global growth would slip to 2.3 per cent this year, down from 2.5 per cent in 2014 and 2015.

UNCTAD warned that without far-reaching structural reforms in both wealthy and poorer nations countries would increasingly turn to protectionism, triggering “a vicious downward cycle affecting everyone.”

“Policymakers all around the world face a difficult combination of sluggish investment, productivity slowdowns, stagnant trade, rising inequality and mounting levels of debt,” UNCTAD chief Mukhisa Kituyi said.

He said six years of sluggish growth, coupled with job and income insecurity, had created an atmosphere of “political anxiety.”

‘Angry rhetoric’

Kituyi also warned against casting immigrants and other groups as scapegoats in citing “angry rhetoric” and “tirades against globalization (and) global trade” coming out of countries such as the United States and Britain.

UNCTAD said “a stringent fiscal stance and at times outright austerity” after the 2008 global financial downturn had “led to one of the weakest recoveries from an economic crisis on record” with growth in developed countries of just 1.6 per cent, down from 2.0 last year.

Low global demand and stagnant real wages will engender a dramatic slowdown in global trade, forecast to grow just 1.5 per cent this year, the agency forecast.

Richard Kozul-Wright, head of globalization and development strategies at UNCTAD, said protectionism was not the cause but could be a consequence of sluggish growth as countries often seek isolation to shield themselves in hard times.

The biggest problem, he said, was that corporations were failing to reinvest profits in things like new factories or research, and instead pocket the money, for instance as dividends.

Major imbalance

“In particular, there is a major imbalance between ...wages and profits,” he told reporters.

UNCTAD urged countries to close corporate tax loopholes and introduce fiscal and regulatory measures to “encourage long-term investment.”

Although developed countries represent the biggest drag on global growth, the report warned “developing countries are now caught in the downdraft” with their growth rate set to fall from 3.9 per cent in 2015 to 3.8 per cent this year -- down from 7.8 per cent just five years ago.

Increased globalisation means emerging economies are ever more vulnerable to shifts in developed nations, UNCTAD said, urging “better policy coordination” and warning against placing “undue faith in markets”.