According to this year’s Trade and Development Report from UNCTAD’s United Nations Conference on Trade and Development, global debt has risen sharply to $250 trillion, or three times total global income.
Ten years ago – when the global financial crisis erupted – the deficit stood at $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, according to UNCTAD.
And while the global economy has generally “recovered” since 2017, at the regional level, economic growth has been sporadic, according to the UNCTAD report.
“The global economy is walking a tightrope between debt-fueled growth and financial instability,” Kozul-Wright said. “There has certainly been a recovery in the United States. The question is whether this is an economic sugar rush driven by tax cuts and military spending, or whether there is sustainable growth behind it. We tend to think it’s the former.”
Noting that the performance of the US economy has been “much better” than that of most of Europe, where growth is “slowing” across the continent, UNCTAD’s senior economist said Japan had also shown “rather weak performance”, which was reflected in a significant number of large emerging economies at risk of recession.
The global economy is walking a tightrope between debt-fueled growth and financial instability. Richard Kozul-Wright, UNCTAD
According to the UNCTAD report, large emerging economies that rely on commodity exports – Russia and the four BRICS countries: Brazil, India, China and South Africa – can expect some improvement “while prices remain firm.”
But this is not the case for many other developing economies where “economic storm clouds” are gathering, UNCTAD says, pointing to the fact that their share of global debt has risen from 7 percent in 2007 to 26 percent this year.
Private and corporate debt is driving this rise in borrowing, but it has not been used to invest in businesses, so “the growing debt seen globally is closely linked to rising inequality,” Kozul-Wright said.
On trade tensions, the UNCTAD report suggests that any serious escalation of tariff hikes imposed by the United States, China and the Eurozone could threaten much-needed investment in vulnerable economies.
The fact that large companies account for well over half of exports is also linked to falling returns in emerging countries – with the exception of the newly industrialized economies of Asia and China.
“Trade is a game for big companies,” Kozul-Wright said. “More than 50 percent of global trade is managed by 1 percent of companies. Big business has been a major source of inequality. It’s about the growing power of monopolies and concentrated markets.”
A sign of China’s prolific growth is its growing share of exports in the BRICS group of countries, which rose from 5% in 1990 to more than 20% in 2016, according to UNCTAD.
The UN report also notes that among developing economies, only those in East Asia are significantly home to the headquarters of major transnational corporations.
This has led East Asia to see its share of profits generated by the world’s 2,000 largest multinationals rise from 7 percent in 1995 to more than 26 percent in 2015.
“The global economy is under stress again,” said Mukhisa Kituyi, UNCTAD secretary-general. “Immediate pressures are mounting around escalating tariffs and volatile financial flows, but behind these threats to global stability lies a broader failure – since 2008 – to address the inequalities and imbalances of our hyperglobalized world. »
Despite the likelihood of economic stability this year, the report warns of a potential economic decline in the near future.
There is an urgent need for governments to work together to coordinate global policies to better manage the multilateral trading system, said Kozul-Wright of UNCTAD.
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