Time for Action

The global economy continues to face a host of risks and uncertainties, including continued trade tensions, escalating geopolitical conflicts, elevated debt levels, as well as catastrophic climate shocks. Provided these factors can be contained, a modest uptick in global growth to 2.5 percent is projected for 2020. However, the risks of a further deterioration in the economic situation remain high. Prolonged weakness in global economic activity may cause significant setbacks for sustainable development, including the goals to eradicate poverty and create decent jobs for all.

The share of the world population living in extreme poverty has declined steadily and significantly over the past few decades, largely due to successful experiences in China and India. Although progress has been made in global terms, in the last few years the number of people living in extreme poverty has been rising in several sub-Saharan countries and in parts of Latin America and West Asia. At the same time, pervasive inequalities and the deepening climate crisis have fueled growing discontent in many parts of the world.

Economic growth around the world remains very uneven. Despite significant headwinds from global trade tensions, East Asia remains the world’s fastest growing region and the largest contributor to worldwide growth, but globally, one in five countries will see per-capita incomes stagnate or decline in 2020. Many of these are commodity exporters, which are still ailing from the effects of the commodity price downturn of 2014-16. In one third of commodity-dependent developing countries–home to 870 million people–average real incomes are lower today than they were in 2014. This includes several larger economies, such as Angola, Argentina, Brazil, Nigeria, South Africa and Saudi Arabia. In addition, Africa has experienced a decade of near stagnation in per-capita GDP, notwithstanding some bright spots such as Ethiopia, Rwanda and Cote d’Ivoire. Meanwhile, average per-capita incomes in Latin America and the Caribbean are about 4 percent lower today than in 2014.

With the deteriorating economic outlook, central banks around the world have once again become the main line of defense. A total of 64 central banks reduced interest rates in 2019, marking the broadest shift in monetary policy since the 2008 global financial crisis. However, it has become clear that overreliance on monetary policy is not just insufficient to revive economic growth, but also entails significant costs, including an increase in financial stability risks in the future.

Meanwhile, investors continue to underestimate climate risks, encouraging short-sighted decisions that expand investment in carbon-intensive assets. This leaves many governments and investors exposed to sudden losses, while posing substantial setbacks to sustainable environmental targets. The only way to decisively sever the link between greenhouse gas emissions and economic activity is to change the energy mix and move away from burning fossil fuels. Energy transition is expected to have substantial social consequences, which will fall unevenly within and among countries. Measures to compensate those who are disproportionately impacted are essential to protect vulnerable populations and safeguard the political viability of difficult but urgently needed policy actions.