The global economy is expected to strengthen over the next two years, despite a downgrade of growth prospects for some developing countries and transition economies, and “stubbornly slow” job growth, according to the United Nations World Economic Situation and Prospects 2014 mid-year update launched today in New York.
“More than five years after the financial crisis, the world continues to struggle with getting the global economic engine back to running at full capacity,” said Pingfan Hong, Chief of the Global Economic Monitoring Unit for the UN Department of Economic and Social Affairs (UNDESA).
“Compared to pre-crisis trends, we have not sufficiently boosted output, trade and employment to their potential levels,” he added.
Global growth has been revised slightly lower from the forecasts presented in the 2014 report. Growth of world gross product (WGP) is now projected at 2.8 per cent in 2014 and 3.2 per cent in 2015, up from 2.2 per cent in 2013. However, this pace of expansion is still low compared to the growth path before the 2008 global financial crisis.
The report warns that risks and uncertainties for the world economy include: international spill-overs from ongoing adjustment in monetary policies by developed economies; vulnerabilities of emerging economies; remaining fragilities in the euro area; long-term unsustainable public finance for many developed countries; and geopolitical tensions.
While the report notes that economies of developed countries are likely to grow at 2 per cent this year and 2.4 per cent in 2015 – faster than in the two previous years, but still relatively weak – growth in North America, Japan and Western Europe will be impacted by trade imbalances, high unemployment, and ageing populations.
The report goes on to note that the Commonwealth of Independent States (CIS) region will also face a “challenging international environment” and, in addition, many countries are confronted with domestic challenges and risks. Several large CIS economies stagnated in early 2014.
For example, growth in Russia, which has a strong influence over the region, was already disappointing in 2013, and the crisis around Crimea and the possibility of economic sanctions targeting broader sectors of the Russian economy have led to a massive outflow of capital and further weakening of business and consumer confidence, says the report.
Globally, according to the UN International Labour Organization (ILO), employment grew by 1.4 per cent in 2013, a similar pace as in 2012, but stubbornly slower than the rate of 1.7 per cent in pre-crisis years. The global jobs gap – comparing the number of jobs today with the number that would exist using pre-crisis trends – widened farther to 62 million in 2013.
As for developing economics, the report states that Africa will continue to see solid growth of 4.2 per cent this year, although political problems in a number of countries have led to a downward revision compared to the previous forecast. In Libya, for example, disruptions to oil output and exports will be a major drag on growth, underpinning a significantly lower growth rate for North Africa than previously forecast.
East Asia is expected to see robust growth as exports to developed countries strengthen and domestic demand in most economies remains firm, while in Western Asia, internal instabilities and lower oil exports continue to shape the economic picture.
The report underscores that the economies of Iraq, Jordan, Lebanon, Syria and Yemen have been hampered by continuing political instability, social unrest, security incidents and geopolitical tensions. The war in Syria has been taking a “particularly heavy human toll” and led to the widespread destruction of crucial infrastructure.
Economic growth in Latin America and the Caribbean is expected to continue at a subdued pace in 2014, amidst increasing difficulties in some of the largest economies. The report says the region is expected to grow moderately by 2.6 per cent in 2014, although with mixed results across sub-regions.
In Mexico and Central America, economic growth is strengthening, benefiting from the pick-up in activity in the United States. By contrast, growth in South America is decelerating markedly from 3.2 per cent in 2013 to 2.1 per cent in 2014.
Argentina is experiencing a noticeable slowdown, amidst decreasing business confidence and persistent inflation pressures, while Venezuela is likely to enter into recession. Brazil’s economy continues to expand at a very moderate rate of 1.7 per cent in 2014, with meagre prospects for investment demand and increasing pressure for fiscal consolidation.
Long-term unemployment has been rising in developed countries, which could lead to higher levels of structural unemployment. Across developing countries, a main challenge remains the level of informal employment, which, on average, reaches between 40 and 50 per cent in Africa, Asia and Latin America and the Caribbean. In the outlook, global employment is expected to continue growing at a slow pace.
“As the number of jobs lost in comparison with the pre-crisis employment trend continues to increase and structural unemployment remains a major problem, policymakers need to implement more supportive macroeconomic policies and active labour market policies,” said Matthias Kempf, the UN’s team leader for the report.