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Economic activity uptick possible if risks kept at bay: UN

20 Jan '20

4 min read

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Impacted by prolonged trade disputes, the global economy suffered its lowest growth in a decade, slipping to 2.3 per cent in 2019. But the world could see a slight uptick in economic activity in 2020 if risks are kept at bay, according to the United Nations World Economic Situation and Prospects (WESP) 2020 released by the UN Conference on Trade and Development.

The report states that growth of 2.5 per cent in 2020 is possible, but a flare-up of trade tensions, financial turmoil, or an escalation of geopolitical tensions could derail a recovery.

In a downside scenario, global growth would slow to just 1.8 per cent this year. A prolonged weakness in global economic activity may cause significant setbacks for sustainable development, including the goals to eradicate poverty and create decent jobs for all. At the same time, pervasive inequalities and the deepening climate crisis are fueling growing discontent in many parts of the world, it said.

“These risks could inflict severe and long-lasting damage on development prospects. They also threaten to encourage a further rise in inward-looking policies, at a point when global cooperation is paramount,” UN secretary general António Guterres warned.

In the United States, recent interest rate cuts by the US Federal Reserve may lend some support to economic activity. However, given persistent policy uncertainty, weak business confidence and waning fiscal stimulus, the gross domestic product (GDP) growth in the United States is forecast to slow from 2.2 per cent in 2019 to 1.7 per cent in 2020.

In the European Union, manufacturing will continue to be held back by global uncertainty, but this will be partially offset by steady growth in private consumption, allowing a modest rise in GDP growth from 1.4 per cent in 2019 to 1.6 per cent in 2020, says the report.

Despite significant headwinds, East Asia remains the world’s fastest growing region and the largest contributor to global growth, according to the Report. In China, GDP growth is projected to moderate gradually from 6.1 per cent in 2019 to 6.0 per cent in 2020 and 5.9 per cent in 2021, supported by more accommodative monetary and fiscal policies.

Growth in other large emerging countries, including Brazil, India, Mexico, the Russian Federation and Turkey, is expected to gain some momentum in 2020.

Africa has experienced a decade of near stagnation in per capita GDP and many countries around the world are still ailing from the effects of the commodity price downturn of 2014-16, which resulted in persistent output losses and setbacks in poverty reduction. In one-third of commodity-dependent developing countries (home to 870 million people), average real incomes are lower today than they were in 2014. This includes several large countries such as Angola, Argentina, Brazil, Nigeria, Saudi Arabia and South Africa.

At the same time, the number of people living in extreme poverty has risen in several sub-Saharan African countries and in parts of Latin America and Western Asia. Sustained progress towards poverty reduction will require both a significant boost to productivity growth and firm commitments to tackle high levels of inequality. UN estimates indicate that to eradicate poverty in much of Africa, annual per capita growth of over 8 per cent would be needed, compared to the just 0.5 per cent average rate over the past decade.

Over-reliance on monetary policy is not just insufficient to revive growth, it also entails significant costs, including the exacerbation of financial stability risks, the report said. A more balanced policy mix is needed, one that stimulates economic growth while moving towards greater social inclusion, gender equality, and environmentally sustainable production, it added.

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