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Global growth is slowing amid rising trade and financial risks

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Global economic growth remains strong but has passed its recent peak and faces escalating risks including rising trade tensions and tightening financial conditions, according to the OECD’s latest Economic Outlook.

Growth forecasts for next year have been revised down for most of the world’s major economies. Global GDP is now expected to expand by 3.5% in 2019, compared with the 3.7% forecast in last May’s Outlook, and by 3.5% in 2020.

In many countries, unemployment is at record lows and labour shortages are beginning to emerge. But rising risks could undermine the projected soft landing from the slowdown. Trade growth and investment have been slackening on the back of tariff hikes. Higher interest rates and an appreciating US dollar have resulted in an outflow of capital from emerging economies and are weakening their currencies. Monetary and fiscal stimulus is being withdrawn progressively in the OECD area.

The shakier outlook in 2019 reflects deteriorating prospects, principally in emerging markets such as Turkey, Argentina and Brazil, while the further slowdown in 2020 is more a reflection of developments in advanced economies as slower trade and lower fiscal and monetary support take their toll.

Presenting the Outlook, OECD Secretary-General Angel Gurría said: “Trade conflicts and political uncertainty are adding to the difficulties governments face in ensuring that economic growth remains strong, sustainable and inclusive.”

“We urge policy-makers to help restore confidence in the international rules-based trading system and to implement reforms that boost growth and raise living standards – particularly for the most vulnerable.”

The Outlook says trade tensions are already harming global GDP and trade, and estimates that if the US hikes tariffs on all Chinese goods to 25%, with retaliatory action being taken by China, world economic activity could be much weaker. By 2021, world GDP would be hit by 0.5%, by an estimated 0.8% in the US and by 1% in China. Greater uncertainty would add to these negative effects and result in weaker investment around the world. The Outlook also shows that annual shipping traffic growth at container ports, which represents around 80% of international merchandise trade, has fallen to below 3% from close to 6% in 2017.

Growth in China has eased over the course of 2018 amid tighter rules on “shadow bank” financial intermediaries outside the formal banking sector, a more rigorous approval process for local government investment and new US tariffs on Chinese imports. Stimulus measures and easier financial conditions by the central bank may help to bolster slowing growth and help engineer a soft landing, but could also aggravate risks to financial stability, says the Outlook. A much sharper slowdown in Chinese growth would damage global growth significantly, particularly if it were to hit financial market confidence.

With very low interest rates in many countries – particularly in the euro area – and historically high  debt-to-GDP levels (both public and private), policy-makers’ room for manoeuvre in case of a more marked global downturn is limited. The Outlook says it is important to maintain the capacity for tax and spending policies to stimulate demand if growth weakens sharply. Although such fiscal space is limited, co-ordinated action will be far more effective than countries going it alone. Such action should be focussed on  growth-friendly measures, such as investment in physical and digital infrastructure and targeting consumption spending more towards the less well-off.

Laurence Boone, OECD Chief Economist, said: “There are few indications at present that the slowdown will be more severe than projected. But the risks are high enough to raise the alarm and prepare for any storms ahead. Cooperation on fiscal policy at the global and euro level will be needed.”

She added: “Shoring up the global economy also involves responding to people’s concerns about the lack of improvements in wages, living standards and opportunities. Promoting competition to improve business dynamics can help by increasing workers’ bargaining position and lowering prices for consumers. Investing in skills is also crucial. It raises productivity and income and reduces inequality between workers.”

A special chapter in the Outlook shows how, as digitalisation spreads, the divide between high-skill, low-routine jobs and low-skill, high-routine work continues to grow, posing the risk of further widening inequalities. It says strengthening product market competition would not only prompt wider diffusion of new technologies, thereby raising productivity growth, but also help transfer output and efficiency gains to wages.

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UNIDO to provide emergency assistance to China to help contain the outbreak of coronavirus

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The United Nations Industrial Development Organization (UNIDO) will provide emergency response assistance to China to help fight the outbreak of the novel coronavirus (Covid-19). A related project document was signed today by Ambassador WANG Qun, Permanent Representative of China to the United Nations in Vienna, and LI Yong, Director General of UNIDO.

UNIDO will quickly deliver 100,000 medical masks and 20,000 protective suits to China. It will also provide medical waste decontamination equipment, with capacity to deal with four tonnes of medical waste per day, for a newly established hospital. Videos and other remote training materials will educate staff in hospitals and disposal centres in both cities and in rural areas on the safe management of medical waste.

“The coronavirus disease was first detected in Wuhan, China, and continued to expand to other cities and countries. It has a significant impact on people’s lives, health, and overall socioeconomic development. The Chinese government has made great efforts to prevent and control the epidemic, adopted an open and transparent attitude towards the epidemic information, implemented comprehensive, positive and correct preventive and control measures, and the standards even exceeded the relevant requirements of the International Health Regulations. It has not only effectively protected the people’s health and safety of life, but also contributed to the maintenance of global public health security,” said Wang. “The project is urgently needed in China to protect medical staff and to prevent further spread of the coronavirus through medical waste. We thank UNIDO for its strong support and are willing to work with UNIDO and the international community to promote the development of world health.”

“The outbreak of Covid-19 brings new challenges to China, as the confirmed and suspected cases are still increasing,” said UNIDO’s Li. “New infections need to be minimized, including among medical staff who are the backbone of the fight against Covid-19. For this, protective equipment for medical staff is needed; but also ways to manage safely the hazards posed by medical waste. This is where UNIDO will make a difference with the support agreed today.”

Since 2008, UNIDO has assisted China in managing medical waste in a safe, environmentally sound manner. “Our transformative activities, implemented in cooperation with the Ministry of Ecology and Environment, have systematically enhanced capacity on medical waste in more than 170 disposal centres and over 1,500 hospitals across the whole country,” said the UNIDO Director General.

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Somalia Eligible for Assistance Under the Enhanced HIPC Initiative

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The Executive Boards of the International Monetary Fund (IMF) and World Bank met, on February 12 and 13, respectively, to consider Somalia’s eligibility for debt relief under the Enhanced Heavily Indebted Poor Countries (HIPC) Initiative. The Executive Boards commended the authorities’ sustained commitment to economic and institutional reforms under challenging circumstances and agreed that Somalia is eligible for assistance under the Enhanced HIPC Initiative based on a preliminary assessment. This assessment is an important step towards forgiveness of most of Somalia’s debt, which measured US$5.3 billion at the end of 2018.

Following the IMF Executive Board discussion on Somalia on February 12, 2020, Kristalina Georgieva, Managing Director and Acting Chair, said:

Today’s agreement by the IMF Executive Board that Somalia can be eligible for debt relief under the Enhanced HIPC Initiative marks a historic moment. It provides a clear recognition of Somalia’s sustained commitment to key economic and financial reforms under consecutive staff-monitored programs with the IMF. Helping Somalia achieve debt relief and unlock access to the needed resources to increase growth and reduce poverty is a key priority for the IMF. I am very grateful to our members for all their support in this endeavor.”

Following the World Bank Executive Board discussion on February 13, 2020, David Malpass, World Bank Group President, said:

Today was an important step towards Somalia resuming financing from international financial institutions, including IDA, our fund for the poorest countries. I congratulate Somalia for embracing important reforms that can do much to encourage sustainable poverty reduction, and I thank our international partners who have worked with us to bring Somalia to this important stage. We are glad to have worked closely with the Federal Government of Somalia in assisting their progress over the past few years and look forward to opportunities for greater World Bank Group support for the Somali people.”

To complete the journey to the HIPC Decision Point, Somalia’s performance under the current IMF Staff-Monitored Program (SMP) will need to be confirmed as satisfactory, and the authorities will need to either clear their arrears to multilateral creditors or agree a strategy to clear them. World Bank staff expect to present the operation for clearing the arrears to the International Development Association (IDA) by the end of February 2020. In addition, the agreement on the reforms that Somalia will need to implement to reach the Completion Point—the floating Completion Point triggers—will need to be finalized taking account of the views expressed by the Executive Boards. Prompt action on these items could result in Somalia reaching the Decision Point by the end of March 2020.

Once Somalia has reached the Completion Point, it would qualify for unconditional debt relief under the HIPC Initiative, and for debt relief under the Multilateral Debt Relief Initiative (MDRI) from the World Bank’s IDA and the African Development Fund (AfDF), together with beyond-HIPC assistance from the IMF. Paris Club creditors are also expected to provide further beyond-HIPC assistance at the Completion Point.

The HIPC Initiative

The HIPC Initiative is a framework, created by the IMF and World Bank, in which all creditors, including multilateral creditors, provide debt relief to the world’s poorest and most heavily indebted countries, thereby reducing the constraints on economic growth and poverty reduction imposed by the debt-service burden. To date, 36 countries have reached both their Decision Points and Completion Points under the Enhanced HIPC initiative.

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Why Australia’s 2019-2020 bushfire season was not normal, in three graphs

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Data from satellite sources assembled by the United Nations Environment Programme’s (UNEP) World Environment Situation Room confirms that the wildfires in Australia in the last two months of 2019 and the first six weeks of 2020 were far from normal.   

WESR Global Surface Temperatures

2019 was the second hottest year on record since 1880, and Australia recorded its warmest temperatures ever in December 2019.

The number of fires in New South Wales remained fairly constant from 2003 to 2018, but more than trebled in 2019 (Fires recorded by MODIS (NASA), trend analysis, UNEP/GRID-Geneva).

“The trend is very clear: 37 of the last 40 years were the warmest recorded since 1880, and the six warmest years recorded were the last six years,” says Pascal Peduzzi, Director of UNEP’s Global Resource Information Database in Geneva. “For those who think Australia is always burning, the following graphs clearly show that these fires were exceptional.”

The months of November and December 2019 saw much greater wildfire activity than usual. The data indicates that it was mainly evergreen forest that caught fire. (Fires detected by MODIS, intersected with MODIS landcover and by province. Data sources: NASA, Data Analytics : UNEP/GRID-Geneva)

“This service, accessible via the UNEP’s World Environment Situation Room, is provided for all countries at national and provincial levels. It identifies trends in wildfire activity since 2003, when the data first became available and monitoring began. We have sliced and diced the satellite-based data on wildfires worldwide from 2009 to the present day. We analyse the wildfires’ data by month, type of land cover, protected area, province and nation to produce information products,” Peduzzi adds.

World Database on Protected Areas (WDPA). Even protected areas, mostly forests, were affected. The graph shows fires detected by MODIS (NASA), intersected with province, landcover and World Database of Protected Areas information (UNEP/WCMC, analytics. UNEP/GRID-Geneva)

UN Environment

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