Global economic activity is projected to slowly gain momentum, but growth will continue to be below potential and employment gains will remain weak, says the UN report, launched today. It notes that since late 2012, new policy initiatives in major developed economies have reduced systemic risks and helped stabilize consumer, business and investor confidence, but with very limited improvement on economic growth.
“The main priority for policy makers worldwide should be to support a robust and balanced global recovery, with a focus on promoting job creation,” said Shamshad Akhtar, UN Assistant Secretary-General for Economic Development.
Global growth has been revised slightly downward from the forecasts presented in the WESP in December 2012.
Growth of world gross product (WGP) is now projected at 2.3 per cent in 2013, the same pace as in 2012, before gradually strengthening to 3.1 per cent in 2014, supported by an expected pickup in activity in the United States.
The report warns that risks are still tilted to the downside and have the potential to derail, once again, the still feeble recovery of the world economy. Short-term risks associated with the situation in the euro area, fiscal adjustments in the US and the sharp slowdown in large developing countries have diminished, but not disappeared. In addition, some new medium-term risks have emerged, including potentially adverse effects of the unconventional monetary measures in developed economies, such as Japan and the United States, on global financial stability.
The report highlights the continuing need to enhance international policy coordination to mitigate negative spillovers, reform the global financial system and ensure sufficient resource flows to developing countries.
Ongoing weaknesses in developed economies
The report shows ongoing weaknesses in developed economies, which continue to face major risks and uncertainties. In the euro area, the risk of a near-term break-up has declined considerably, but the economic situation remains dire. The real economy is held back by austerity programmes, weak bank lending and continued uncertainty, with activity projected to contract by 0.4 per cent in 2013. WESP says only a small expansion of 1.1 per cent is forecast for 2014, and this weak recovery remains uncertain given persistent banking and fiscal risks.
In the US, the avoidance of the fiscal cliff and expansion of monetary easing, along with gradual recovery in the housing sector, have somewhat improved growth prospects. Automatic government spending cuts and uncertainties associated with budget issues will weigh on aggregate demand. Economic growth is forecast to slow to 1.9 per cent in 2013, before picking up to 2.6 per cent in 2014. Political gridlock and additional fiscal tightening could result in much lower-than-projected growth.
In Japan, policymakers have taken bold expansionary measures in an attempt to resuscitate the economy from the grip of deflation, but the results of these policies remain uncertain. GDP growth is projected at 1.3 per cent in 2013 and 1.6 per cent in 2014.
Many large developing countries, including Brazil, China, India and the Russian Federation, saw a significant deceleration in GDP growth in the past two years.
“The deceleration in the BRIC countries is largely due to a combination of weak external conditions and domestic impediments,” said Ingo Pitterle, the UN’s team leader for the report.
Although the report predicts GDP growth in China to be 7.8 per cent in 2013 and 7.7 per cent in 2014, an unexpected drop in China’s growth to about 5 per cent would impact economic activity worldwide, especially in commodity-exporting developing countries.
The report also addresses aspects related to capital flows in emerging economies, as well as the labor market and jobs not being created fast enough. “The employment situation remains a key policy challenge in a large number of economies, as the world economy continues to expand below its potential,” noted Pingfan Hong, Chief of the Global Economic Monitoring Unit of DESA’s Division for Development Policy and Analysis.