"Bleak and Uncertain" UN Also Downgrades Global Economic Outlook to 1.9%

[Asia Economy New York=Special Correspondent Joselgina] Following the World Bank (WB), the United Nations (UN) has also significantly downgraded its global economic growth forecast for this year. The lingering effects of Russia's invasion of Ukraine last year, soaring inflation, and financial tightening are weighing heavily on this year's economic outlook.

The UN Department of Economic and Social Affairs (UN DESA), along with other UN agencies, released the "World Economic Situation and Prospects 2023" report on the 25th (local time), projecting a global economic growth rate of 1.9% for this year. This figure is 1.2 percentage points lower than the forecast of 3.1% presented in the mid-year report last year. The UN described this as "the lowest growth rate in recent decades," stating that it reflects "a bleak and uncertain short-term economic outlook."

◆ Advanced Economies Also Slowing Down = The report anticipates a clear economic slowdown centered on advanced economies such as the United States and Europe. The U.S. GDP growth rate is expected to be only 0.4% this year, which is 1.4 percentage points lower than the previous forecast. The European Union (EU) growth forecast was also lowered by 2.2 percentage points to 0.2%. In Europe, which has been directly hit by the Ukraine war, several countries including Germany (-0.4%) and Italy (-0.3%) are expected to experience mild recessions. The UK, which is already considered to have entered a recession since the second half of last year, is forecasted to have a negative growth of 0.8% this year.

China, one of the two major economies (G2), is expected to grow by 4.8% this year, but this is still below the pre-pandemic average of 6-6.5%. There are also analyses suggesting that China's economic reopening may not be easy due to concerns over a resurgence of COVID-19. Additionally, many East Asian countries excluding China are losing growth momentum due to rising living costs and weakening exports. Japan and South Korea are estimated to grow by 1.5% and 2.0%, respectively.

The UN cited the food and energy crisis caused by the Ukraine war, the aftermath of the COVID-19 pandemic, soaring inflation and financial tightening, and the climate crisis as the reasons behind the downward revision of growth forecasts. The UN analyzed, "Last year, growth momentum weakened significantly in the U.S., EU, and other advanced economies, adversely affecting the rest of the world through various channels," adding, "High inflation, aggressive monetary tightening, and rising uncertainty threaten both advanced and developing countries alongside recession prospects this year." As a result, many countries are expected to face recession risks this year.

This aligns with the World Bank's analysis, which downgraded its growth forecast earlier than the UN. The WB lowered the global economic growth rate for 2023 from 3.0% to 1.7% earlier this year, citing high inflation, successive interest rate hikes, and Russia's invasion of Ukraine as reasons. The WB had warned that the global economy is "dangerously close" to a recession.

However, the UN expects the global growth rate to gradually rise to 2.7% in 2024 as macroeconomic headwinds begin to ease. It also noted that this recovery depends on several variables, including the pace of further tightening, the course of the Ukraine war, and additional supply chain disruptions. The growth forecasts for the U.S. and EU next year are 1.7% and 1.6%, respectively.

◆ "Vulnerabilities of Developing Countries Will Increase" = The UN also highlighted in this report that simultaneous interest rate hikes by major central banks such as the U.S. Federal Reserve (Fed) are worsening fiscal and debt vulnerabilities in developing countries. Accordingly, the UN's diagnosis is that developing countries will inevitably face greater impacts as growth slowdowns, high inflation, and debt vulnerabilities intertwine. The population facing severe food crises last year was about 350 million, more than double the pre-pandemic figure in 2019.

The 17 Sustainable Development Goals (SDGs) that the UN is promoting with various countries have also been put at risk. UN Secretary-General Antonio Guterres emphasized international cooperation, stating, "Now is not the time for short-term thinking or unconditional fiscal tightening that worsens inequality, increases suffering, and pushes the SDGs further away," adding, "Unprecedented times require unprecedented measures." The report includes calls for countries to intervene with policies aimed at job creation and growth stimulation instead of fiscal tightening. It also recommends strengthening social protection systems through temporary subsidies and utility discounts, and expanding strategic public investments in education, healthcare, digital infrastructure, and new technologies.