The global economy continues to grapple with the lasting impact of the COVID-19 pandemic, dampening prospects for a strong recovery, according to the latest World Economic Situation and Prospects report by the United Nations (UN), released on Tuesday.
The report highlights several factors contributing to the challenges faced by the global economy, including persistent inflation, rising interest rates, increased uncertainties, and the escalating consequences of climate change.
The current economic outlook poses an immediate obstacle to achieving the Sustainable Development Goals (SDGs), as stated by Li Junhua, Under-Secretary-General for the Department of Economic and Social Affairs (DESA).
Li emphasized the urgent need for the international community to address the funding shortages experienced by many developing nations. This would entail strengthening their capabilities to make essential investments in sustainable development and supporting their transition to economies that foster inclusive and long-term growth.
According to the report, the global economy is projected to grow by a modest 2.3% in 2023 and 2.5% in 2024. Although this reflects a slight improvement in the growth forecast for 2023, it remains significantly lower than the average growth rate of 3.1% observed in the two decades prior to the pandemic.
In the United States, resilient household spending has prompted an upward revision of the growth forecast to 1.1% in 2023. Lower gas prices and strong consumer spending have also led to a revised projection of 0.9% growth for the European Union’s economy. As COVID-19 restrictions continue to be lifted, China’s growth in 2023 is now expected to reach 5.3%.
Despite these modest improvements, the growth rate remains below pre-pandemic levels, indicating a continuing economic struggle. Many developing countries have experienced deteriorating growth prospects due to tighter credit conditions and rising external financing costs. In Africa, Latin America, and the Caribbean, gross domestic product (GDP) per capita is projected to see only marginal increases this year, further exacerbating the long-term trend of stagnating economic performance.
For the least developed countries, the growth forecast for 2023 stands at 4.1%, followed by 5.2% in 2024, which falls far below the ambitious seven percent growth target set in the 2030 Agenda for Sustainable Development.
Global trade remains under pressure due to geopolitical tensions, weakening global demand, and tighter monetary and fiscal policies. The volume of global trade in goods and services is expected to grow by only 2.3% in 2023, significantly below the pre-pandemic trend.
Inflation continues to pose challenges, with many countries experiencing persistently high rates, despite substantial declines in international food and energy prices over the past year. The report projects average global inflation at 5.2% in 2023, down from the two-decade high of 7.5% in 2022.
Although upward price pressures are anticipated to gradually ease, inflation in many countries is expected to remain well above central banks’ targets. Domestically, food inflation remains elevated in most developing countries due to local supply disruptions, high import costs, and market imperfections. This disproportionately affects the poor, particularly women and children.
The rapid tightening of global financial conditions poses significant risks for many developing countries and transitioning economies. Rising interest rates, coupled with the shift from quantitative easing to quantitative tightening in developed economies, have exacerbated debt vulnerabilities and further limited options for public spending.
Addressing the current policy challenges requires enhanced cross-border policy cooperation and global actions to prevent many developing economies from falling into a cycle of low growth and high debt.
Labour markets in developed economies, including the United States and Europe, have displayed remarkable resilience, contributing to sustained robust household spending. Despite widespread worker shortages and low unemployment rates, wage gains have increased.
Employment rates in many developed economies have reached record highs, with the gender gaps narrowing since the onset of the pandemic.
However, the exceptional strength of labor markets poses challenges for central banks in their efforts to curb inflation. The Federal Reserve, the European Central Bank, and other central banks in developed countries have continued to raise interest rates in 2023, albeit at a slower pace than the aggressive monetary tightening witnessed in previous years.
The banking sector turmoil in the United States and Europe has introduced additional uncertainties and challenges for monetary policy.
While swift and decisive actions by regulators have helped mitigate risks to financial stability, vulnerabilities within the global financial architecture and the measures taken to address them are expected to dampen credit and investment growth in the future.
Overall, the post-pandemic world economy continues to grapple with the lasting effects of COVID-19. While some regions show signs of improvement, the global recovery remains fragile. Addressing persistent challenges such as inflation, debt vulnerabilities, and funding shortages in developing countries requires concerted global efforts and stronger cross-border policy cooperation.
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