A pessimistic growth forecast for 2023 should not lead to “short-term thinking or knee-jerk fiscal austerity” that could worsen inequality or threaten development goals, the UN said yesterday in a report.
This comes as the world economy faced a series of shocks last year including fallout from the pandemic, Russia’s invasion of Ukraine and surging inflation.
Global economic growth is set to slump against this backdrop, from an estimated 3.0 per cent in 2022 to 1.9 per cent this year, said the United Nations in its World Economic Situation and Prospects report.
But “this is not the time for short-term thinking or knee-jerk fiscal austerity that exacerbates inequality, increases suffering and could put (sustainable development goals) farther out of reach,” said UN Secretary-General Antonio Guterres (pic).
“These unprecedented times demand unprecedented action,” he added in a statement.
The 17 sustainable development goals (SDGs) Guterres referred to were adopted by UN member states in 2015. Their aims include achieving food security, eliminating poverty, and providing access to clean and affordable energy by 2030.
While a summit in New York later this year will assess the progress towards these goals, many are not on track to be met.
“Slower growth, elevated inflation and mounting debt vulnerabilities threaten to further set back hard-won SDG achievements, deepening the already negative effects of the Covid 19 pandemic,” said the UN report.
Under current economic circumstances “the typical prescription” from economists would be to cut spending, AFP cited Hamid Rashid, who led the writing of the UN report saying.
“Governments will be often asked to tighten their belts,” he told AFP.
“Our key message in the report is that governments in developing countries especially… must avoid austerity,” he said, adding that this would be “extremely detrimental” for development goals.
As restructuring becomes tough when a country defaults on its debt, it is better to do so before a default, he said.
According to the report, in 2022, debt servicing accounted for over 25 per cent of government revenue in eight developing countries. For Sri Lanka, this hit nearly 80 per cent of government revenue.
The UN is also concerned about risks of a fall in development aid.
War in Ukraine and future reconstruction “will divert some resources,” Rashid said, warning of a huge setback for low-income countries.
In September, the UN Development Programme estimated that an unprecedented array of crises has set human progress back five years.
Painting a gloomy and uncertain economic outlook, the U.N. Department of Economic and Social Affairs said the current global economic slowdown “cuts across both developed and developing countries, with many facing risks of recession in 2023.”
“A broad-based and severe slowdown of the global economy looms large amid high inflation, aggressive monetary tightening, and heightened uncertainties,” U.N. Secretary-General Antonio Guterres said in a foreword to the 178-page report.
The report said this year’s 1.9% economic growth forecast — down from an estimated 3% in 2022 — is one of the lowest growth rates in recent decades. But it projects a moderate pick-up to 2.7% in 2024 if inflation gradually abates and economic headwinds start to subside.
In its annual report earlier this month, the World Bank which lends money to poorer countries for development projects, cut its growth forecast nearly in half, from it previous projection of 3% to just 1.7%.
The International Monetary Fund, which provides loans to needy countries, projected in October that global growth would slow from 6% in 2021 to 3.2% in 2022 and 2.7% in 2023. IMF Managing Director Kristalina Georgieva said at last week’s World Economic Forum in Davos that 2023 will be a difficult year, but stuck by the projection and said “we don’t expect a global recession.”
According to the U.N. report, this year “growth momentum has weakened in the United States, the European Union and other developed economies, adversely affecting the rest of the world economy.”
In the United States, GDP is projected to expand by only 0.4% in 2023 after estimated growth of 1.8% in 2022, the U.N. said. And many European countries are projected to experience “a mild recession” with the war in Ukraine heading into its second year on Feb. 14, high energy costs, and inflation and tighter financial conditions depressing household consumption and investment.
The economies in the 27-nation European Union are forecast to grow by just 0.2% in 2023, down from an estimated 3.3% in 2022, the U.N. said. And in the United Kingdom, which left the EU three years ago, GDP is projected to contract by 0.8% in 2023, continuing a recession that began in the second half of 2022, it said.
With China’s government abandoning its zero-COVID policy late last year and easing monetary and fiscal policies, the U.N. forecast that its economy, which expanded by only 3% in 2022, will accelerate to 4.8% this year.
“But the reopening of the economy is expected to be bumpy,” the U.N. said. ”Growth will likely remain well below the pre-pandemic rate of 6-6.5%.”
The U.N. report said Japan’s economy is expected to be among the better-performing among developed countries this year, with GDP forecast to increase by 1.5%, slightly lower than last year’s estimated growth of 1.6%.
Across east Asia, the U.N. said economic recovery remains fragile though GDP growth in 2023 is forecast to reach 4.4%, up from 3.2% last year, and stronger than in other regions.
In South Asia, the U.N. forecast average GDP growth will slow from 5.6% last year to 4.8% this year as a result of high food and energy prices, “monetary tightening and fiscal vulnerabilities.”
But growth in India, which is expected to overtake China this year as the world’s most populous nation, is expected to remain strong at 5.8%, slightly lower than the estimated 6.4% in 2022, “as higher interest rates and a global slowdown weigh on investments and exports,” the U.N. report said.
In Western Asia, oil-producing countries are benefiting from high prices and rising output as well as a revival in tourism, the U.N. said. But economies that aren’t oil producers remain weak “given tightening access to international finance and severe fiscal constraints,” and average growth in the region is projected to slow from an estimated 6.4% in 2022 to 3.5% this year.
The U.N. said Africa has been hit “by multiple shocks, including weaker demand from key trading partners (especially China and Europe), a sharp increase in energy and food prices, rapidly rising borrowing costs and adverse weather events.”
One result, it said, is mounting debt-servicing burdens which have forced a growing number of African governments to seek bilateral and multilateral support.
The U.N. projected economic growth in Africa to slow from an estimated 4.1% in 2022 to 3.8% this year.
In Latin America and the Caribbean, the U.N. said the outlook “remains challenging,” citing labor market prospects, stubbornly high inflation and other issues. It forecast that regional growth will slow to just 1.4% in 2023 from an estimated expansion of 3.8% in 2022.
“The region’s largest economies – Argentina, Brazil and Mexico – are expected to grow at very low rates due to tightening financial conditions, weakening exports, and domestic vulnerabilities,” the U.N. said.
For the world’s least developed countries, the U.N. said growth is projected at 4.4% this year, about the same as last year but significantly below the UN’s target of 7% by 2030.
