The world economy is expected to grow 2.5 per cent in 2022 according to UNCTAD’s Trade and Development Report 2022.
This is more than one percentage point below the rate projected in last year’s report and prospects appear to be worsening with growth expected to decelerate further next year to 2.2 per cent, leaving real GDP below its pre-Covid trend by the end of 2023.
The global slowdown is ringing alarm bells across the developing world.
For South Asia, the United Nations Conference on Trade and Development (UNCTAD) expects a weakening economic expansion of 4.9% in 2022, as inflation increases on the back of high energy and food prices, exacerbating balance of payment constraints and forcing several governments to restrict energy consumption.
Moreover, the combination of elevated prices for imported commodities, depreciating local currencies and tightening global financial conditions have only intensified acute levels of debt distress faced by a number of countries, most disruptively in Sri Lanka.
For 2023, UNCTAD expects the region’s growth rate to decline further to 4.1%.
This year’s sell-off in emerging market dollar-denominated bonds is exacerbating debt distress across several economies of South and Western Asia.
Pakistan was expected to slow down this year after the strong bounce last year (close to 6% growth) from the Covid-linked contraction in 2020.
But its mounting debt burden and falling foreign reserves had already pushed the country into negotiations with the International Monetary Fund (IMF) even before the situation turned critical as devastating floods killed thousands of people, ruined crops and destroyed infrastructure around the country.
This illustrates the vicious circle of climate disaster and austerity into which vulnerable developing countries risk falling as global warming accelerates amid insufficient international climate support for countries whose per capita CO2 emissions remain a fraction of advanced countries.
In India, the largest economy of the region, economic activity is being hampered by higher financing costs and weaker public expenditures, resulting in a deceleration in GDP growth to 5.7% in 2022.