Prospects for a robust global economic recovery remain dim amid stubborn inflation, rising interest rates and heightened uncertainties.听
Instead, the world economy faces the risk of a prolonged period of low growth as the lingering effects of the COVID-19 pandemic, the ever-worsening impact of climate change and macroeconomic structural challenges remain unaddressed, according to the听World Economic Situation and听Prospects as of mid-2023听released today.
According to the report, the world economy is now projected to grow by 2.3 per cent in 2023 (+0.4 percentage points from the听January forecast) and 2.5 per cent in 2024 (-0.2 percentage points), a slight uptick in the global growth forecast for 2023.听
In the United States, resilient household spending has prompted upward revision of growth forecast to 1.1 per cent in 2023.
The European Union鈥檚 economy鈥攄riven by lower gas prices and robust consumer spending鈥攊s now projected to grow by 0.9 per cent. China鈥檚 growth this year is now forecast at 5.3 per cent as a result of COVID-19 related restrictions being lifted.
But a sombre picture still remains.听
Despite this uptick, the growth rate is still well below the average growth rate in the two decades before the pandemic of 3.1 per cent.听
For many developing countries, growth prospects have deteriorated amid tightening credit conditions and rising costs of external financing.听
In Africa and Latin America and the Caribbean, GDP per capita is projected to increase only marginally this year, reinforcing a longer-term trend of stagnating economic performance.听
The least developed countries are forecast to grow by 4.1 per cent in 2023 and 5.2 per cent in 2024, far below the 7 per cent growth target set in the 2030 Agenda for Sustainable Development.
鈥淭he current global economic outlook presents an immediate challenge to delivering on the SDGs,鈥� said UN Under-Secretary-General for Economic and Social Affairs, Li Junhua. 鈥淭he global
community must urgently address the growing shortages of funding faced by many developing countries, strengthening their capacities to make critical investments in sustainable development and helping them transform their economies to achieve inclusive and sustained long-term growth.鈥�
Global trade remains under pressure due to geopolitical tensions, weakening global demand and tighter monetary and fiscal policies.听
Africa
- Africa鈥檚 growth is projected to decelerate slightly from 3.5 per cent in 2022 to 3.4 per cent in 2023听before returning to 3.5 per cent in 2024.
- The latest forecasts reflect downward revisions of 0.4 percentage points for 2023 and 0.3 percentage听points for 2024 from the forecasts released in January, accounting for weaker growth prospects in Egypt and South Africa.
- Egypt is now projected to face more pronounced balance of- payments constraints throughout 2023 despite recent monetary tightening measures and currency devaluations.听
- The power crisis in South Africa, including daily rolling power cuts, is projected to hamper economic activities much longer than expected.
Several factors are influencing near-term growth prospects in Africa.听
- First, as monetary stances are projected to remain mostly tight, credit conditions will further tighten.听
- The cost of external funding through international capital markets is expected to stay prohibitively high.
- For countries with substantial financing gaps and high external debt burdens, space for domestic demand expansion is very limited in 2023.听
- Second, mining sector and mining-related investments will support growth in several African economies. The mining sector was the main driver of recent growth, particularly when tourism and other services sectors鈥� growth plunged during the pandemic.
- The expected completion of new investments, such as the Niger鈥揃enin oil pipeline and a liquefied natural gas project offshore of Mauritania and Senegal, improves near-term growth prospects of several African countries.听
- Meanwhile, many countries in the region will face听growing food insecurity.听
- Despite declining international grain prices, a significant fraction of the population in Africa remains food insecure. In West and Central Africa, the level of food insecurity and malnutrition reached a 10-year high.
The volume of global trade in goods and services is forecast to grow by 2.3 per cent in 2023, well below the pre-pandemic trend.
Inflation remains stubbornly high in many countries
Inflation has remained stubbornly high in many countries even as international food and energy prices fell substantially in the past year.听
Average global inflation is projected at 5.2 per cent in 2023, down from a two-decade high of 7.5 per cent in 2022.听
While upward price pressures are expected to slowly ease, inflation in many countries will remain well above central banks鈥� targets.听
Amid local supply disruptions, high import costs and market imperfections, domestic food inflation is still elevated in most developing countries, disproportionately affecting the poor, especially women and children.
Strong labour markets in developed economies are a bright spot
Labour markets in the United States, Europe and other developed economies have continued to show remarkable resilience, contributing to sustained robust household spending.听
Amid widespread worker shortages and low unemployment rates, wage gains have picked up.
Employment rates are at record high levels in many developed economies with gender gaps narrowing since the pandemic.
Global spillovers from monetary tightening demand enhanced policy cooperation
Exceptionally strong labour markets are, however, making it harder for central banks to tame听inflation.
The Federal Reserve, the European Central Bank and central banks in other developed countries have continued to raise interest rates in 2023, but at a slower pace than last year, which saw the most aggressive monetary tightening in decades.听
The banking sector turmoil in the US and Europe has added new uncertainties and challenges for monetary policy.
Although swift and decisive actions by regulators helped contain financial stability risks, vulnerabilities in the global financial architecture and the measures taken to contain them will likely dampen credit and investment growth going forward.
Rapid tightening of global financial conditions poses major risks for many developing countries and economies in transition.
Rising interest rates, coupled with a shift in developed economies from quantitative easing to quantitative tightening, have exacerbated debt vulnerabilities and further constrained fiscal space.听
Current policy challenges call for stronger cross-border policy cooperation and concerted global actions to prevent many developing economies from becoming trapped in a vicious cycle of low growth and high debt.
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