Modest growth of global economy continues
The world economy continues to grow at a modest pace, with a gradual improvement projected for the second half of 2015 and 2016, according to the United Nations World Economic Situation and Prospects as of mid-2015 report, launched on 19 May. Growth of world gross product is projected to improve slightly from 2.6 per cent in 2014 to 2.8 per cent in 2015—a downward revision by 0.3 percentage points from the forecast presented in the World Economic Situation and Prospects 2015 (WESP) in January.
“The current world economic situation is characterised by five ‘lows’: low growth, low trade flows, low inflation, low investment, and low interest rates, combined with two ‘highs’: high equity prices, and high debt levels”
Director of UN DESA’s Development Policy and Analysis Division (DPAD)
The downward revision reflects mainly deterioration in the prospects of the economies in transition and several large developing countries, especially in South America. In 2016, global growth is forecast to improve to 3.1 per cent, which is still well below the pre-crisis pace.
“The current world economic situation is characterised by five ‘lows’: low growth, low trade flows, low inflation, low investment, and low interest rates, combined with two ‘highs’: high equity prices, and high debt levels”, remarked Pingfan Hong, Director of UN DESA’s Development Policy and Analysis Division (DPAD).
Growth divergence likely to widen
The report notes that the growth divergence between the various regions will likely widen this year. WESP attributes this in part to the differing impacts from the recent drop in the prices of oil and other commodities.
The short-term growth prospects of most commodity-exporting economies have been downgraded; by contrast, commodity-importers tend to benefit from the lower prices in the form of reduced inflationary, fiscal and balance-of-payment pressures.
The report warns of still significant downside risks to the forecast related to the impact of the upcoming monetary policy normalization in the United States, ongoing uncertainties in the euro area, potential spillovers from geopolitical conflicts and persistent vulnerabilities in emerging economies.
These individual risk factors are interconnected and could be mutually reinforcing, potentially leading to a weaker-than-expected expansion of the global economy. The overall subdued performance of the world economy since the global financial crisis has raised concerns of a “new normal” of lower growth.
“It is somewhat concerning that, despite highly accommodative monetary policies and historically low global interest rates, real investment has been weak in many parts of the world since the global financial crisis”, said Ingo Pitterle, the DPAD’s team leader for the report.
Developed economies: growth momentum picking up
Almost all major developed economies are expected to see the growth momentum picking up, with average growth projected to accelerate from 1.6 per cent in 2014 to 2.2 per cent in 2015.
The upward trend reflects a moderately improved outlook for the euro area, where the fragile recovery is gradually becoming more broad-based. Lower energy prices, significant currency depreciation on the back of the European Central Bank’s new large-scale asset-buying program, and some easing of fiscal consolidation pressures are expected to support the recovery.
In the United States, export growth may be dampened by the significant appreciation of the US dollar since mid-2014. Despite expectations of a pick-up in growth, developed economies still face considerable headwinds from the legacies of the global financial crisis, including subdued employment levels, elevated private and public sector debt, and financial sector fragilities.
The report identifies key challenges in the areas of monetary, fiscal, labour market and trade policies, underlining the need for strengthened international policy coordination. WESP underscores such coordination becomes ever more critical as the Member States of the United Nations are expected to adopt a new financing framework for sustainable development, an ambitious sustainable development agenda, and a universal agreement on climate change later this year.
For more information: World Economic Situation and Prospects