|Department of Public Information • News and Media Division • New York|
Press Conference to Update UN World Economic Situation and Prospects
Global economic activity was forecast to slowly gain momentum in 2013-2014, but growth would continue to be below potential and employment gains — especially in developed countries — would remain weak at best, top United Nations officials said today at a Headquarters press conference.
“The main priority for policymakers worldwide should, therefore, be to support a robust and balanced global recovery, with a focus on promoting job creation,” according to the UN World Economic Situation and Prospects 2013 mid-year update, presented today by three experts from the Department of Economic and Social Affairs: Shamshad Akhtar, Assistant Secretary-General for Economic Development; Pingfan Hong, Chief of the Global Economic Monitoring Unit; and Ingo Pitterle, Economic Affairs Officer.
Painting a picture of fragile recovery and diverse growth patterns, Ms. Akhtar said global growth had been revised slightly downward from the forecasts presented in the World Economic Situation and Prospects 2013, which was released in January. World gross product — the combined gross national product (GNP) of all countries in the world — was now projected at 2.3 per cent this year, the same pace as last year, before strengthening to 3.1 per cent in 2014.
There were three features of the current outlook, she said. First, global slowdown had been replaced by measureable improvements, with the United States economy gaining steam and Japan projected to grow by 1.3 per cent in 2013. The Euro area, while contraction persisted, was marked by differences among countries. Emerging economies were growing at good rates. Brazil, Russian Federation, India and China alone accounted for 15.7 per cent of global gross domestic product (GDP), versus 12.3 per cent prior to the recession.
Second,monetary easing had been augmented, notably in Japan, she said, adding that central banks had resorted to aggressive and unconventional measures, coupled with interest rate adjustments. However, the monetary policy response had not translated into credit recovery, as banks continued to avoid risk. Third, world trade volume was projected to recover to 3.5 per cent before strengthening to 5 per cent in 2014. International prices for primary commodities remained elevated, but the outlook was softening.
Touching on policy challenges, she said emerging markets were concerned about the consequences of recent policy actions by Japan, as those posed a risk to Japan’s debt sustainability, while inducing currency appreciation for emerging markets. Further, evidence had confirmed the “steep” effects of the fiscal tightening across countries, while the prolonged period of subdued growth and fiscal austerity had added 4 million people to the ranks of the unemployed. Governments should lay out a path for fiscal consolidation, with due regard for pace and sequencing, while supporting job creation.
Going forward, she said monetary policy management would only grow more complex, with asset buy-back programmes possibly triggering increases in long-term interest rates. Central banks should create a mechanism to mitigate potential financial instability, develop an exit plan for the medium-term and deal with the spillover effects of unconventional monetary policies.
Drilling down into the data, Mr. Hong said developing countries were leading the global economic gains, but their rates were lower than had been achieved before the crisis. “We may have to accept this as a new normal,” he said. The United States had seen a “moderate” 2.5 per cent growth in the first quarter, driven by gains in equity prices, the housing sector and employment. He expected weaker growth in the following quarters, amid a drag from the sequestration. GDP was forecast to grow at 1.9 per cent this year and strengthen in 2014, assuming that financial “deleveraging” gradually eased.
In Japan, he said expansionary policies to curb inflation appeared to have worked, citing stronger-than-expected GDP growth. In the long-term, however, they could create uncertainties. At the same time, the sharp devaluation of the yen had caused concerns in other countries. The worst situation was still in the Euro area, he said, where the real economy was in recession. Banking fragility had depressed regional confidence and restrained economic growth. Growth was expected to drop by 0.4 per cent in 2013, after falling by 0.6 per cent in 2012. A small 1.1 per cent expansion was forecast for 2014.
Rounding out the discussion, Mr. Pitterle said growth in developing regions was “much higher” than in developed economies, but still lower than pre-crisis levels. He expected a moderate pickup in 2013-2014, following a significant slowdown since 2011. The pickup would be based on two factors: a positive impact from monetary expansions introduced in the second half of 2012; and a slight recovery in external demand, especially in 2014. However, it would be slower than initially expected, as some countries worked through challenging structural problems.
For economies in transition, he expected “relatively weak” growth this year, with economic activity held back by external conditions and subdued domestic demand. “There is not a lot of hope for strong recovery in Europe,” he said. In the least developed countries, he expected stronger growth, but still below potential. Growth in 2013-2014 would reflect improved conditions in Sudan and Yemen, which had previously seen sharp contractions. “We’re very concerned about continuing drop in ODA [official development assistance], which has fallen in real terms for two consecutive years,” he said, stressing that it must be addressed at the international level.
Responding to a question on whether including developing countries in free trade negotiations would foster global financial stability, Ms. Akhtar stressed that regional trade agreements must conform to best practices and respect the principles of multilateralism. Addressing protectionist tendencies should create a more conducive trade environment.
To a question about the scandal surrounding banks’ manipulation of the Libor rate — a global benchmark interest rate used to set a range of financial deals and measure trust in the financial system — Mr. Hong said the Libor scandal was one of many recent financial abuses, which he blamed on a lack of accountability. “We have to deal with these root causes,” he said. Only “very slow” progress had been made in reforming the financial sector, due to resistance from banks. International action was needed to push for reforms.
Ms. Akhtar added that the Libor scandal was under investigation, showing one level of accountability. “Phenomenal” fines had been levied against those guilty of financial irregularities. The Financial Services Board was examining all aspects of the sector, from banking to shadow banking, and there was less tolerance today for evasion, arbitrage and misuse of the system.
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