The world economy has fallen below forecasts of even six months ago and will grow only modestly over the next two years due to “cyclical and structural headwinds,” including low commodity prices and stagnant investment, the United Nations reported today, urging steps to ensure stronger growth.
“Stronger and more coordinated policy efforts are needed to ensure robust, inclusive and sustainable economic growth, which will be a key determinant for achieving the 2030 Sustainable Development Goals,” UN Assistant Secretary-General of the UN Department of Economic and Social Affairs, Lenni Montiel said of the ambitious sustainability goals adopted at a UN summit in September.
Global growth is estimated at a mere 2.4 per cent in 2015, a downward 0.4 percentage-point revision from forecasts presented six months ago, according to the UN World Economic Situation and Prospects (WESP) 2016 report launched today.
Amid lower commodity prices, large capital outflows and increased financial market volatility, growth in developing and transition economies has slowed to its weakest pace since the global financial crisis of 2008-2009, it noted.
Given the anticipated slowdown in China and persistently weak economic performances in other large emerging economies, notably the Russia and Brazil, the pivot of global growth is partially shifting again towards developed economies.
The global economy is projected to grow by 2.9 per cent in 2016 and 3.2 per cent in 2017, supported by generally less restrictive fiscal and still accommodative monetary policy stances worldwide, according to the report.
“The expected timing and pace of normalization of the [United States] monetary policy will help reduce some policy uncertainties and provide impetus to revive investment,” Hamid Rashid, Chief of the UN’s Global Economic Monitoring Unit said in presenting the report.
But preventing excessive volatility and ensuring an orderly adjustment in asset prices also depends on commodity price stabilization and no further escalation in geo-political conflicts, the report noted.
Identifying five major headwinds, it cited persistent macroeconomic uncertainties; low commodity prices and diminished trade flows; rising volatility in exchange rates and capital flows; stagnant investment and productivity growth; and a continued disconnect between finance and real sector activities.
Weak growth is also adversely impacting labour markets in developing and transition economies, with unemployment on the rise, especially in South America, or stubbornly high, as in South Africa. At the same time, job insecurity is often becoming more entrenched amid a shift from salaried work to self-employment.
With persistent output gaps, modest wage growth and lower commodity prices, global inflation is at its lowest level since 2009. Deflation risks in developed economies have diminished, but not disappeared, particularly in Japan and the euro area.
Growth in developed economies will gain some momentum in 2016, surpassing the 2 per cent mark for the first time since 2010, the report notes. Economic growth in developing and transition economies is expected to bottom out and gradually recover, but the external environment will continue to be challenging and growth will remain well below its potential.
Monetary authorities need to make concerted efforts to reduce uncertainty and financial volatility, striking a delicate balance between economic growth and financial stability objectives, it stresses.
Given the massive build-up of private debt in many emerging economies, policymakers need to fine-tune their policy mix – more active fiscal policies, macro-prudential instruments, targeted labour market policies, among others – amid volatile global financial conditions.
The report highlights that monetary policies did most of the heavy-lifting since the global crisis to support growth but the time has come for fiscal policies to play a greater role. Well-designed and targeted labour market strategies are needed to complement fiscal policies to re-invigorate productivity, employment generation and output growth.
In a positive note on recent trends in environmental sustainability, it noted that global energy-related carbon emissions showed no growth in 2014 for the first time in 20 years, with the exception of 2009 when the global economy contracted. This suggests the possibility that the world might start to see some de-linking between economic growth and carbon emission growth.