Modest global growth set to continue for rest of year: UN economic report

According to the UN World Economic Situation and Prospects Update as of mid-2015report, launched earlier this week, growth of world gross domestic product (GDP) will improve slightly from 2.6 per cent in 2014 to 2.8 per cent in 2015, which is 0.3 percentage points lower than the forecast contained in the January version of the report, with the downward revision reflecting a deterioration in growth prospects of economies in transition and several large developing countries, especially in South America.

“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,” said Pingfan Hong, Director of the Development Policy and Analysis Division of the UN Department of Economic and Social Affairs (DESA).

Growth divergence between the various regions will likely widen this year, according to the report, which attributes it in part to differing impacts from recent drops in the price of oil and other commodities.

In the short-term, growth prospects for most commodity-exporting economies have been downgraded, while commodity-importers have tended to benefit from the lower prices in the form of reduced inflationary, fiscal and balance-of-payment pressures.

There are significant downside risks related to the impact of the upcoming monetary policy normalization in the United States, ongoing uncertainties in the Euro area and potential spillover from geopolitical conflicts and persistent vulnerabilities in emerging economies.

The risk factors are not only interconnected but could be mutually reinforcing and could possibly lead to 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. The broad-based weakness in investment worldwide not only holds back current growth, but also reduces potential growth in the future.

“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 Development Policy and Analysis Division team leader for the report.

Photo: IRIN/Jason Gutierrez