Report: Trade Tensions, Policy Uncertainty Dampen Growth Prospects

Report: Trade Tensions, Policy Uncertainty Dampen Growth Prospects

Ugo Aliogo

The global economy is experiencing a broad-based growth slowdown amid unresolved trade tensions, high international policy uncertainty, and softening business confidence, according to the United Nations World Economic Situation and Prospects (WESP) mid-2019 report.

The report released in New York, predicted weaker global growth to casts a shadow over efforts to implement the 2030 agenda for the sustainable development, which had set universal goals for eliminating poverty, promoting prosperity and social well-being while protecting the environment.

Weaker economic growth puts at risk essential investments in areas such as education, health, climate change adaptation and sustainable infrastructure, it stated.
According to the report, the growth outlook in all major developed economies and most developing regions has weakened due to a confluence of both domestic and external factors.

Following an expansion of three per cent in 2018, world gross product growth was now projected to moderate to 2.7 per cent in 2019 and 2.9 per cent in 2020, reflecting a downward revision from the forecasts released in January.

The report identified several downside risks that could trigger a sharper or more prolonged growth slowdown in the world economy, potentially inflicting significant damage on development progress.
These risks include a further escalation in trade tensions, a sudden deterioration in financial conditions, and the accelerating effects of climate change.

“More comprehensive and well-targeted policy responses are needed to tackle the current growth slowdown,” UN’s Chief Economist and Assistant Secretary-General for Economic Development, Elliot Harris said.

“It is increasingly clear that policies to promote sustainable development will need to look beyond GDP growth and identify new and more robust measures of economic performance that appropriately reflect the costs of inequality, insecurity and climate change.”

Amid unresolved trade disputes and higher tariffs, the projected growth of world trade has been revised downwards to 2.7 per cent in 2019, slowing markedly from 3.4 per cent in 2018.

The report warned that a spiral of additional tariffs and retaliations could have significant spill overs on the developing countries, particularly those with a high export exposure to the impacted economies. A more protracted period of weak international trade activity could also harm investment prospects and adversely affect productivity growth in the medium term.

In response to slowing growth and subdued inflation, major central banks have eased their monetary policy stances.
These recent monetary policy shifts have helped to stabilise global financial markets and capital flows to emerging economies. However, the report cautioned that the more protracted period of monetary accommodation could exacerbate financial imbalances, including further fuelling debt accumulation, raising medium-term risks to financial stability.

Faced with deep-rooted structural weaknesses, several large developing countries are struggling to recover from recession or remain trapped on a low growth path. The report highlights that per capita income growth in several parts of Africa, Western Asia, and Latin America and the Caribbean is expected to remain very weak in the outlook period. This poses additional challenges for the Sustainable Development Goals, including the goal to universally eradicate poverty by 2030.

The report further noted that while poverty remains predominantly rural, further progress on poverty reduction also hinges on the effective management of ongoing urbanization. This was particularly relevant for Africa and South Asia, the two regions with the highest number of people in poverty, which are expected to also experience the most rapid pace of urbanization in the next two decades.

The increase in frequency and intensity of natural disasters highlight the rising threats from climate change, particularly for the most vulnerable economies. The report called for a stronger and more coordinated multilateral approach to global climate policy, which includes the use of carbon pricing mechanisms. A price on carbon compelled economic decision-makers to internalise some of the environmental costs of their consumption and production.

The report documented an increasing use of internal CO2 prices by the private sector. This not only resulted in higher energy efficiency and cost savings, but also leaves firms better prepared for expected policy changes.

Related Articles