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Global economy to see ‘steady’ growth of three per cent in 2019 despite risks

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The global economy grew at a “steady” 3.1 per cent last year and similar levels of growth are expected in 2019, but these headline figures mask growth that is uneven and often failing to reach where it is most needed, the UN’s chief economist warned on Monday

“We still have relatively strong growth, but we do see rising risks on the horizon and an increasing likelihood that some of these risks might actually materialize,” said Elliott Harris, United Nations Chief Economist, in comments coinciding with the launch of the World Economic Situation and Prospects 2019 (WESP) report.

Among these looming dangers, accelerating trade tensions are already “having an impact” on global trade and employment, Mr. Harris told UN News.

In addition, rising national debt is also crippling many countries’ ability to provide basic services, but this and other risks – such as those from climate change and waning support for international cooperation – could be avoided or minimized if countries worked together to do so, the UN’s top economist insisted.

With mounting pressures in the areas of international trade, international development finance and tackling climate change, the report underscores that strengthening global cooperation is central to advancing sustainable development.

Yet, these threats come at a time when international cooperation and governance are more important than ever – many of the challenges laid out in the 2030 Agenda for Sustainable Development are global by nature and require collective and cooperative action. Waning support for multilateralism also raises questions around the capacity for collaborative policy action in the event of a widespread global shock.

UN report spotlights ‘uneven progress’

According to the WESP report, published by the UN Department of Economic and Social Affairs, more than half the world’s economies saw growth accelerate in 2017 and 2018.

Developed economies grew at 2.2 per cent in both years, while unemployment rates dropped.

Among developing economies, East Asia and South Asia saw the strongest gains in 2018, at 5.8 per cent and 5.6 per cent respectively, while commodity-exporting countries continued their “gradual recovery”.

This improvement was particularly true for fuel-rich emerging nations, despite high debt levels caused by a fall in commodity prices, in 2014-15.

Although the overall picture among developing economies is largely positive, many are nonetheless experiencing “uneven progress”, the UN report cautioned, amid falling individual (per capita) wealth in several nations.

“Further declines or weak per capita growth are anticipated in 2019 in Central, Southern and West Africa, Western Asia and Latin America and the Caribbean – homes to nearly a quarter of the global population living in extreme poverty,” it noted.

And even where growth is strong, it is “often driven by core industrial and urban regions”, the WESP 2019 report continued, such that rural areas are being left behind.

To overcome this, and for poverty to be eradicated by 2030, the UN report suggests that there will need to be “both double-digit growth in Africa” along with “steep reductions” in unequal pay levels.

US-China trade tensions

On the issue of trade tensions, it noted that these had led to a fall in global trade levels in 2018, from 5.3 per cent in 2017, to 3.8 per cent.

And as a result of the United States-China uncertainty, the expectation is that trade volumes in 2019 “will be lower” still, Mr. Harris suggested.

Government subsidies have to some extent softened the impact of the tariff hikes in the US and China – whose growth is expected to decrease from 6.6 per cent in 2018 to 6.3 per cent this year – but the risk is that developing economies may suffer the fallout too, unless the dispute is settled.

“If the trade dispute becomes more widespread, we will likely to see disruptions of global value change,” Mr. Harris explained. “Bear in mind that the participation of global trade has been one of the ways that developing countries have participated in the rising global prosperity and have accelerated their own developments. So, anything that disrupts that, of course, (will) have a negative impact on their abilities to increase their levels of prosperity and to develop sustainably.”

This cautionary assessment is telling because the US in 2018 contributed more to global trade than Japan or the European Union, according to UN economists at UNCTAD, the UN Conference on Trade and Development, which contributed to the WESP 2019 report.

Rising interest rates in the US – or a strengthening of the dollar – could also make matters worse for fragile emerging economies, the WESP report noted, adding that many low-income countries have already seen a “substantial rise” in interest repayments on their debt.

These include Lebanon and Sri Lanka, where over 40 per cent of Government revenue is spent servicing its debt, as well as Pakistan and Jamaica, where around a quarter of their budget is used to pay interest on national debt, representing a major constraint on public services.

Slow, steady growth in EU, but ‘Brexit’ looms

On the European Union’s prospects, the WESP report estimates growth of two per cent for the next two years, with much stronger performances, potentially, from States who became members since 2004.

The pack is led by Poland, which saw its economy grow by five per cent in 2018.

The bloc’s biggest economy, Germany, is set to see more moderate growth however, at 1.8 per cent, amid potential disruption to the domestic car industry from “new technologies, new competitors and significant legal and financial consequences from past sales practices related to the diesel technology”.

France is also set to see lower-than-average growth (1.8 per cent), linked to its weaker export outlook, while the UK (1.4 per cent) is projected to pay for trade uncertainty linked to its plans to exit the EU, or Brexit, with “companies moving assets or diverting investment from the UK to the EU”, WESP 2019 notes.

The ‘Brexit’ fallout may also be felt outside the EU, the UN report warns, with a possible “10-15 per cent decline in funding available to EU accession countries”.

Commonwealth States, Central Europe slso see ‘modest growth’

In most Commonwealth of Independent States (CIS), which includes Russia, most saw accelerating growth and slowing inflation last year, amid “supportive” commodity prices.

Despite this, overall growth is forecast to slow “modestly” this year to two per cent, and 2.5 per cent in 2020, WESP 2019 suggests, amid concerns that strong expansion in smaller economies may be unsustainable, while lower public spending is expected in others.

Focusing on Russia, the UN report notes that lifting the value-added tax (VAT) rate may encourage inflation and curb household spending, while ongoing sanctions could deter investment from abroad.

Other large commodity-exporting countries, such as Brazil and Nigeria, should see a “moderate pickup “in growth in 2019-2020, “albeit from a low base”.

Noting robust growth in Central Asia’s Tajikistan, thanks to increased aluminium and gold exports, WESP 2019 also suggests a much more positive future for the whole region, once China’s Belt and Road initiative becomes operational.

Frequently hailed as a 21st century version of the ancient Silk Road trade route, the region “should benefit from … upgrades to countries’ railway, road and energy infrastructure, improved connections with China and Europe, and better market access,” the report explains.

Elsewhere, South-Eastern Europe saw faster growth in 2018 and its overall gross domestic product (GDP) is expected to expand by 3.7 per cent in 2019 and 2020.

Serbia, the region’s largest economy, benefited from double-digit growth in investment amid strong performances in farming and construction, while Albania also saw “solid” economic performance, WESP 2019 noted, before cautioning that longer-term improvements risk being “constrained”, unless there are improvements in industrial infrastructure and dependence on foreign financing.

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Post-COVID-19, regaining citizen’s trust should be a priority for governments

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coronavirus people

The COVID-19 crisis has demonstrated governments’ ability to respond to a major global crisis with extraordinary flexibility, innovation and determination. However, emerging evidence suggests that much more could have been done in advance to bolster resilience and many actions may have undermined trust and transparency between governments and their citizens, according to a new OECD report.

Government at a Glance 2021 says that one of the biggest lessons of the pandemic is that governments will need to respond to future crises at speed and scale while safeguarding trust and transparency. “Looking forward, we must focus simultaneously on promoting the economic recovery and avoiding democratic decline” said OECD Director of Public Governance Elsa Pilichowski. “Reinforcing democracy should be one of our highest priorities.”

 Countries have introduced thousands of emergency regulations, often on a fast track. Some alleviation of standards is inevitable in an emergency, but must be limited in scope and time to avoid damaging citizen perceptions of the competence, openness, transparency, and fairness of government.

 Governments should step up their efforts in three areas to boost trust and transparency and reinforce democracy:

 Tackling misinformation is key. Even with a boost in trust in government sparked by the pandemic in 2020, on average only 51% of people in OECD countries for which data is available trusted their government. There is a risk that some people and groups may be dissociating themselves from traditional democratic processes.

 It is crucial to enhance representation and participation in a fair and transparent manner. Governments must seek to promote inclusion and diversity, support the representation of young people, women and other under-represented groups in public life and policy consultation. Fine-tuning consultation and engagement practices could improve transparency and trust in public institutions, says the report. Governments must also level the playing field in lobbying. Less than half of countries have transparency requirements covering most of the actors that regularly engage in lobbying.

 Strengthening governance must be prioritised to tackle global challenges while harnessing the potential of new technologies. In 2018, only half of OECD countries had a specific government institution tasked with identifying novel, unforeseen or complex crises. To be fit for the future, and secure the foundations of democracy, governments must be ready to act at speed and scale while safeguarding trust and transparency.

 Governments must also learn to spend better, according to Government at a Glance 2021. OECD countries are providing large amounts of support to citizens and businesses during this crisis: measures ongoing or announced as of March 2021 represented, roughly, 16.4% of GDP in additional spending or foregone revenues, and up to 10.5% of GDP via other means. Governments will need to review public spending to increase efficiency, ensure that spending priorities match people’s needs, and improve the quality of public services.

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Sweden: Invest in skills and the digital economy to bolster the recovery from COVID-19

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Sweden’s economy is on the road to recovery from the shock of the COVID-19 crisis, yet risks remain. Moving ahead with a labour reform to facilitate adaptation in a fast-changing economic environment, and investing in digital skills and infrastructure, will be crucial to revive employment and build a sustainable recovery, according to the latest OECD Economic Survey of Sweden.

The pandemic triggered a severe recession in Sweden, despite mild distancing measures and swift government action to protect people and businesses. GDP fell by less than in many other European economies in 2020, thanks to reinforced short-time work, compensation to firms for lost revenue and measures to prop up the financial system, but unemployment still rose sharply. Solid public finances provided room for further stimulus in 2021 to buttress the recovery.

 The Survey recommends maintaining targeted support to people and firms until the pandemic subsides, then focusing on strengthening vocational training and skills and increasing investment in areas like high-speed internet and low-carbon transport. Addressing regional inequality, which is low but rising, should also be a priority as the recovery takes hold.

 The Survey shows that Sweden has been among the most resilient OECD countries in the face of a historic shock. Yet, like other economies, it faces challenges from demographic changes and the shift to green, digital economies. Investments in education and training, and labour reforms along the lines negotiated by the social partners, will support job creation and strengthen economic resilience. Building on Sweden’s leadership in digital innovation and diffusion will also be key for driving productivity.

 After a 3% contraction in 2020, interrupting several years of growth, the Survey projects a rebound in activity with 3.9% growth in 2021 and 3.4% in 2022 as industrial production resumes and exports recover. The recovery in world trade is bolstering the Swedish economy, however the country remains vulnerable to potential disruptions in global value chains.  

The pandemic has aggravated a mismatch in Sweden’s job market, with unfilled vacancies for highly qualified workers coinciding with high unemployment for low-skilled workers and immigrants. The public employment service needs strengthening to provide better support to jobseekers, including immigrants and women, and labour policies should strike the right balance between supporting businesses and workers and supporting transitions away from declining businesses towards growing sectors.

A rising share of youths and older people in the population, especially in remote areas, is affecting the finances of local governments, which provide the bulk of welfare services. Strengthening local government budgets and ensuring equal welfare provision across the country will require providing tax income to poorer regions more efficiently and raising the economic growth potential across regions through investments in innovation. Improving coordination between government entities and reinforcing the role of universities in local economic networks would help achieve that aim.

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Fewer women than men will regain work during COVID-19 recovery

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Generations of progress stands to be lost on women and girls' empowerment during the COVID-19 pandemic. Photo: ILO

Fewer women will regain jobs lost to the COVID-19 pandemic during the recovery period, than men, according to a new study released on Monday by the UN’s labour agency.  

In Building Forward Fairer: Women’s rights to work and at work at the core of the COVID-19 recovery, the International Labour Organization (ILO) highlights that between 2019 and 2020, women’s employment declined by 4.2 per cent globally, representing 54 million jobs, while men suffered a three per cent decline, or 60 million jobs. 

This means that there will be 13 million fewer women in employment this year compared to 2019, but the number of men in work will likely recover to levels seen two years ago. 

This means that only 43 per cent of the world’s working-age women will be employed in 2021, compared to 69 per cent of their male counterparts. 

The ILO paper suggests that women have seen disproportionate job and income losses because they are over-represented in the sectors hit hardest by lockdowns, such as accommodation, food services and manufacturing. 

Regional differences 

Not all regions have been affected in the same way. For example, the study revealed that women’s employment was hit hardest in the Americas, falling by more than nine per cent.  

This was followed by the Arab States at just over four per cent, then Asia-Pacific at 3.8 per cent, Europe at 2.5 per cent and Central Asia at 1.9 per cent. 

In Africa, men’s employment dropped by just 0.1 per cent between 2019 and 2020, while women’s employment decreased by 1.9 per cent. 

Mitigation efforts 

Throughout the pandemic, women faired considerably better in countries that took measures to prevent them from losing their jobs and allowed them to get back into the workforce as early as possible. 

In Chile and Colombia, for example, wage subsidies were applied to new hires, with higher subsidy rates for women.  

And Colombia and Senegal were among those nations which created or strengthened support for women entrepreneurs.  

Meanwhile, in Mexico and Kenya quotas were established to guarantee that women benefited from public employment programmes. 

Building forward 

To address these imbalances, gender-responsive strategies must be at the core of recovery efforts, says the agency. 

It is essential to invest in the care economy because the health, social work and education sectors are important job generators, especially for women, according to ILO. 

Moreover, care leave policies and flexible working arrangements can also encourage a more even division of work at home between women and men. 

The current gender gap can also be tackled by working towards universal access to comprehensive, adequate and sustainable social protection. 

Promoting equal pay for work of equal value is also a potentially decisive and important step. 

Domestic violence and work-related gender-based violence and harassment has worsened during the pandemic – further undermining women’s ability to be in the workforce – and the report highlights the need to eliminate the scourge immediately. 

Promoting women’s participation in decision-making bodies, and more effective social dialogue, would also make a major difference, said ILO. 

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