Growth of the world economy has weakened considerably during 2012 and is expected to remain subdued in the coming two years. The global economy is expected to grow at 2.4 per cent in 2013 and 3.2 per cent in 2014 a significant downgrade from the UN’s forecast of half a year ago. The report also foresees a much slower pace of poverty reduction in many developing countries and a narrowing fiscal space for investments in critical areas for achieving the MDGs.
The World Economic Situation and Prospects (WESP) is jointly produced by DESA, the UN Conference on Trade and Development (UNCTAD) and the five United Nations Regional Commissions and is the definitive report on the state of the world economy.
“We have identified three major economic risks,” said Pingfan Hong, Chief of the Global Economic Monitoring Unit of DESA’s Development Policy and Analysis Division, when the report’s first chapter was launched on 18 December 2012. Mr. Hong pointed to the deterioration of the euro crisis, the US fiscal cliff and a possible hard landing for some large developing countries.
“To mitigate these risks, policymakers worldwide are greatly challenged,” underscored Mr. Hong, also describing how the world economy is still struggling to recover five years after the eruption of the global financial crisis.
Global economy is expected to grow at 2.4 per cent in 2013 and 3.2 per cent in 2014, a significant downgrade from the forecast six months ago. This growth pace will not be enough to overcome the continued jobs crisis faced by many countries. With existing policies and growth trends, it may take at least another five years for Europe and the United States to make up for the job losses caused by the Great Recession of 2008-2009.
With the full report being launched this week, it also provides detailed forecasts for different regions of the world.
Strong headwinds for developed economies
“The economies of the developed countries still face strong headwinds in their struggle to return to sustained growth and consequently the growth outlook for 2013 and 2014 is very weak,” said Clive Altshuler, Economic Affairs Officer of the Global Economic Monitoring Unit of DESA’s Development Policy and Analysis Division.
Mr. Altshuler pointed to a host of troublesome legacies, only partially resolved including depressed housing markets, fragile banking sectors and weak lending to the private sector, deleveraging by households and firms, large fiscal imbalances leading Governments to adopt stringent austerity programs and extremely high and in many cases still rising unemployment rates.
Developing economies main drivers of global growth
“On average, developing countries – and also the least developed countries – will grow at a much faster pace than both developed economies and economies in transition,” said Ingo Pitterle, Economic Affairs Officer of the Global Economic Monitoring Unit of DESA’s Development Policy and Analysis Division. “Developing countries will therefore continue to be the main driver of global growth,” he added.
However, Mr. Pitterle explained that the projected pace is insufficient to significantly reduce poverty levels, also underscoring that growth will likely be based on two major factors. “First, we expect a positive impact from the policy measures that were recently undertaken in many developing countries, for example Brazil, China and India,” Mr. Pitterle said. “Second, we project a slight recovery in external demand as global conditions stabilize,” he said.
Mr. Pitterle also explained that there are downside risks to the baseline outlook, including the possibility of a further sharp slowdown in some of the large developing countries themselves, notably China and a worsening of the eurozone crisis.
Mild recovery for economies in transition
Describing the outlook for transition economies, which are the countries of South Eastern Europe and the Commonwealth of Independent States (CIS), Grigor Agabekian, Economic Affairs Officer of the Global Economic Monitoring Unit of DESA’s Development Policy and Analysis Division, pointed to another year of economic stagnation for South-Eastern Europe in 2012.
“We are forecasting a very mild recovery in 2013, with only one to two percent growth in GDP for most of those economies,” he said. Mr. Agabekian also explained that the growth rates are insufficient for addressing the most important problems of the region, namely re-industrialisation and addressing excessively high unemployment rates.
He also described the developments in CIS, which registered diverse economic performance in 2012 where growth had been seen for major exporters of oil and gas. “Some economies in Central Asia, in particular, grew at strong rates. At the same time, those countries with the strong links with the European Union, such as Moldova and Ukraine, virtually stagnated,” Mr. Agabekian said, adding “We’re forecasting more-or-less the same pattern of growth in 2013”.
Outlining the way forward, tackling the grim economic situation, Mr. Hong said, “some countries have indeed strengthened their policy stance, but we need more concerted policy actions, at both national and international levels. We also need policies to focus more on promoting jobs creation.”