Global economic growth projections revised downward to 2.7% in 2019 and 2.9% in 2020
The global economy is experiencing a broad-based growth slowdown amid unresolved trade tensions, high international policy uncertainty, and softening business confidence, according to UN DESA’s World Economic Situation and Prospects (WESP) as of mid-2019 report, released in New York on 21 May 2019.
The forecast for weaker global growth casts a shadow over efforts to implement the 2030 Agenda for Sustainable Development, which has set universal goals for eliminating poverty, promoting prosperity and social well-being while protecting the environment. Weaker economic growth puts at risk essential investments in areas such as education, health, climate change adaptation and sustainable infrastructure.
According to the report, the growth outlook in all major developed economies and most developing regions has weakened due to a confluence of both domestic and external factors. Following an expansion of 3.0 per cent in 2018, world gross product growth is now projected to moderate to 2.7 per cent in 2019 and 2.9 per cent in 2020, reflecting a downward revision from the forecasts released in January.
“If we look back six months ago, we saw that growth had already started to slow, but some of the risks that were highlighted at that time have now materialized,” said Dawn Holland, Chief of the Global Economic Monitoring Branch in UN DESA.
The report identifies several downside risks that could trigger a sharper or more prolonged growth slowdown in the world economy, potentially inflicting significant damage on development progress. These risks include a further escalation in trade tensions, a sudden deterioration in financial conditions, and the accelerating effects of climate change.
“More comprehensive and well-targeted policy responses are needed to tackle the current growth slowdown,” said Elliot Harris, UN Chief Economist and Assistant Secretary-General for Economic Development. “It is increasingly clear that policies to promote sustainable development will need to look beyond GDP growth and identify new and more robust measures of economic performance that appropriately reflect the costs of inequality, insecurity and climate change.”
Dimmed economic outlook for different regions
Across most regions, the economic outlook has dimmed, as also highlighted in the June Monthly Briefing. In the United States, GDP growth for this year is projected at 2.3 per cent—down from 2.9 per cent in 2018—as the effects of fiscal stimulus measures wane. As external trade weakened more sharply than expected, the European Union and Japan are projected to grow at a slower pace of 1.5 per cent and 0.8 per cent in 2019, respectively.
While growth in the East and South Asia regions is expected to moderate, the economic outlook remains robust, amid resilient domestic demand. In East Asia, regional GDP growth is projected to moderate slightly from 5.8 per cent in 2018 to 5.5 per cent in both 2019 and 2020. Following growth of 5.7 per cent in 2018, South Asia is forecast to expand by 5.0 per cent in 2019 and 5.8 per cent in 2020.
In contrast, the growth outlook in many of the other regions remains challenging. In Africa, GDP growth is projected at 3.2 per cent in 2019 and 3.7 per cent in 2020, after an expansion of only 2.7 per cent in 2018. These growth rates are insufficient to absorb a fast-growing labour force. The creation of decent jobs represents a crucial challenge to make further progress in poverty reduction. Several sub-Saharan African economies have poverty rates that are among the highest in the world.
Meanwhile, Western Asia’s growth forecast for 2019 has been revised down from 2.4 per cent to 1.7 per cent, reflecting lower oil sector output in Saudi Arabia and a sharp decline in industrial production in Turkey. For the economies of the Commonwealth of Independent States, external conditions, including non-oil commodity prices, may be less supportive in 2019. Growth is expected to moderate slightly, especially as fiscal policies are largely growth-neutral, and several countries have tightened monetary conditions.
In Latin America and the Caribbean, the economic recovery has lost momentum, with regional GDP projected to expand by only 1.1 per cent in 2019, following estimated growth of 0.9 per cent in 2018. Economic activity in late 2018 and early 2019 was weaker than expected, particularly in some of the region’s largest countries, including Argentina, Brazil and Mexico.
Persistently high trade tensions a threat to global growth
Amid unresolved trade disputes and higher tariffs, the projected growth of world trade has been revised downwards to 2.7 per cent in 2019, slowing markedly from 3.6 per cent in 2018. The report warns that a spiral of additional tariffs and retaliations could have significant spillovers on the developing countries, particularly those with a high export exposure to the impacted economies. A more protracted period of weak international trade activity could also harm investment prospects and adversely affect productivity growth in the medium term.
Carbon pricing a key element in combating climate change
The increase in frequency and intensity of natural disasters highlight the rising threats from climate change, particularly for the most vulnerable economies. The report calls for a stronger and more coordinated multilateral approach to global climate policy, which includes the use of carbon pricing mechanisms. A price on carbon compels economic decisionmakers to internalize some of the environmental costs of their consumption and production. The report documents an increasing use of internal CO2 prices by the private sector. This not only results in higher energy efficiency and cost savings, but also leaves firms better prepared for expected policy changes.
For more regional economic highlights, please check out the June Monthly Briefing on the World Economic Situation and Prospects, available here [available on 3 June].
For more information: World Economic Situation and Prospects as of mid-2019