The United Nations Conference on Trade and Development (UNCTAD) has warned that the world is headed towards a global recession and prolonged stagnation unless fiscal and monetary policies holding sway in some advanced economies are quickly reversed.

UNCTAD raised the alarm in its latest report, warning that the policy-induced global recession could be worse than the global financial crisis of 2007 to 2009.

The agency said excessive monetary tightening and inadequate financial support could expose developing economies further to cascading crises.

According to UNCTAD, development prospects may be fractured as supply-side shocks, waning consumer and investor confidence and the war in Ukraine has provoked a global slowdown and triggered inflationary pressures. It added that while all regions will be affected, alarm bells are ringing most for developing countries, many of which are edging closer to debt default.

“As climate stress intensifies, so do losses and damage inside vulnerable economies that lack the fiscal space to deal with disasters. The report projects that world economic growth will slow to 2.5 per cent in 2022 and drop to 2.2 per cent in 2023 – a global slowdown that would leave GDP below its pre-COVID pandemic trend and cost the world more than $17 trillion in lost productivity,” it said.

UNCTAD said despite this, leading central banks are sharply raising interest rates, threatening to cut off growth and making life much harder for the heavily indebted.

It said the global slowdown will further expose developing countries to a cascade of debt, health and climate crises.

“Middle-income countries in Latin America and low-income countries in Africa could suffer some of the sharpest slowdowns this year, according to the report. With 60 per cent of low-income countries and 30 per cent of emerging market economies in or near debt distress, UNCTAD warns of a possible global debt crisis. Countries that were showing signs of debt distress before the pandemic are being hit hard by the global slowdown.

UNCTAD said: “And climate shocks are heightening the risk of economic instability in indebted developing countries, seemingly under-appreciated by the G20 major economies and other international financial bodies. Developing countries have already spent an estimated $379 billion of reserves to defend their currencies this year almost double the amount of the International Monetary Fund’s recently allocated Special Drawing Rights to supplement their official reserves.”

It asked governments to increase public spending and use price controls on energy, food and other vital areas; investors to channel more money into renewables; and called on the international community to extend more support to the UN-brokered Grain Initiative.

Speaking on the report, UNCTAD Chief, Rebeca Grynspan, said: “There is still time to step back from the edge of recession.”

The UN body is requesting that international financial institutions urgently provide increased liquidity and extend debt relief for developing countries as well as call on the IMF to allow fairer use of ‘Special Drawing Rights’ and for countries to prioritise a multi-lateral legal framework on debt restructuring.

“Some 90 developing countries have seen their currencies weaken against the dollar this year – over a third of them by more than 10 per cent. And as the prices of necessities like food and energy have soared in the wake of the Ukraine war, a stronger dollar worsens the situation by raising import prices in developing countries. UNCTAD is calling on advanced economies to avoid austerity measures and international organisations to reform the multi-lateral architecture to give developing countries a fairer say,” the UN body said.