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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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Thailand: Growth in Jobs Critical for Sustained COVID-19 Recovery

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Thailand’s economy was severely impacted by the COVID-19 pandemic and is estimated to have shrunk by 6.5 percent in 2020. Growth is projected to expand by 4.0 percent in 2021, according to Restoring Incomes; Recovering Jobs, the latest edition of the World Bank’s Thailand Economic Monitor,” launched today. The report stresses that sustained recovery in employment will be essential to helping the country bounce back in 2021 and 2022.

In 2020, weak global demand, the sharp decline in international tourist arrivals, and domestic mobility restrictions depressed goods and services exports and private consumption. Exports and private investment are estimated to have declined by 18.5 percent and 4.4 percent respectively, while household consumption declined by 1.3 percent.

The resulting declines in income have created economic hardship for many, though the Government has made good progress in implementing a substantial package of measures to support households and firms. Nevertheless, projections indicate that an additional 1.5 million people may have entered poverty in 2020 due to the economic impacts of COVID-19, based on a poverty line of US$5.50 (2011 PPP) per day.

This year, the economy is expected to recover gradually, despite the recent second outbreak of COVID-19, and growth is forecast to pick up further to 4.7 percent in 2022. However, the recovery remains vulnerable to downside risks, including from an extended resurgence of the pandemic resulting in a prolonged stagnation in tourism and domestic activity, a weaker-than-expected global recovery that could lead to continuing trade and supply chain disruptions, and high household debt levels.  

The pandemic’s impact has had a significant impact on Thailand’s labor market, with a particularly large increase in unemployment among young people. Hours worked fell, as did monthly incomes. Hours worked have not fully recovered, and employment in several sectors including manufacturing remains smaller than a year ago. This means the labor market is in a vulnerable position to confront any future shocks including a resurgence of COVID-19.

“The COVID-19 crisis and its economic impact have highlighted a key vulnerability for Thailand: the declining number of working-aged people, which compounds the challenge of recovering the economic losses of the last year,” said Birgit Hansl, World Bank Country Manager for Thailand. “Improvements in employment, productivity and labor incomes, especially among the poor, will be necessary for a sustainable recovery.”  

The report recommends that in the short term, the government put in place training programs to improve workers skills and provide financial support while they get back to work. Ongoing efforts are required to ensure that education and training matches the needs of employers.

In the longer term, the government can increase employment in the care sector, make childcare more accessible and decrease its cost to help increase female labor force employment. The report also recommends increasing the retirement age and putting in place performance-based compensation schemes and flexible working arrangements to extend the working lives of older people.

“The decline in the working age population will reduce labor supply and economic output over the coming decades. Good jobs will need to be created in high-productivity sectors associated with Thailand’s emerging knowledge economy. Policies to boost labor productivity and labor market participation of older people and women can help promote a sustainable recovery from COVID-19, while addressing challenges associated with an aging population,” according to Kiatipong Ariyapruchya, World Bank Senior Economist for Thailand.

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The World Needs to Wake Up to Long-Term Risks

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For the last 15 years the World Economic Forum’s Global Risks Report has been warning the world about the dangers of pandemics. In 2020, we saw the effects of ignoring preparation and ignoring long-term risks. The COVID-19 pandemic has not only claimed millions of lives, but it also widened long-standing health, economic and digital disparities. Billions of caregivers, workers and students – especially minorities who were disadvantaged before the pandemic – are now at risk of missing pathways to the new and fairer societies that the recovery could unlock. According to the Global Risks Report 2021, released today, these developments may further impede the global cooperation needed to address long-term challenges such as environmental degradation.

When it comes to technology access and digital skills, the gap between the “haves” and the “have nots” risks widening and challenging social cohesion. This will particularly affect young people worldwide, as this group faces its second global crisis in a generation and could miss out altogether on opportunities in the next decade.

Financial, digital and reputational pressures resulting from COVID-19 also threaten to leave behind many companies and their workforces in the markets of the future. While these potential disparities could cause societal fragmentation for states, an increasingly tense and fragile geopolitical outlook will also hinder the global recovery if mid-sized powers lack a seat at the global table.

Once again, environmental risks dominate by impact and likelihood, looking ahead towards the next decade. Societal fractures, uncertainty and anxiety will make it more difficult to achieve the coordination needed to address the planet’s continued degradation.

For the first time, the report also rates risks according to when respondents perceive they will pose a critical threat to the world. Clear and present dangers (0-2 years) reveal concern about lives and livelihoods – among them infectious diseases, employment crises, digital inequality and youth disillusionment. In the medium-term (3-5 years), respondents believe the world will be threatened by knock-on economic and technological risks, which may take several years to materialize – such as asset bubble bursts, IT infrastructure breakdown, price instability and debt crises. Existential threats (5-10 years) – weapons of mass destruction, state collapse, biodiversity loss and adverse technological advances – dominate long-term concerns.

“In 2020, the risk of a global pandemic became reality, something this report has been highlighting since 2006. We know how difficult it is for governments, business and other stakeholders to address such long-term risks, but the lesson here is for all of us to recognize that ignoring them doesn’t make them less likely to happen. As governments, businesses and societies begin to emerge from the pandemic, they must now urgently shape new economic and social systems that improve our collective resilience and capacity to respond to shocks while reducing inequality, improving health and protecting the planet. To help meet this challenge, next week’s event, The Davos Agenda, will mobilize global leaders to shape the principles, policies and partnerships needed in this new context,” said Saadia Zahidi, Managing Director at the World Economic Forum.

The report also reflects on the responses to COVID-19, drawing lessons designed to bolster global resilience. These lessons include formulating analytical frameworks, fostering risk champions, building trust through clear and consistent communication, and creating new forms of partnership. The key risks outlined in the report are complemented with recommendations to help countries, businesses, and the international community to act, rather than react, in the face of cross-cutting risks. The report closes with an overview of “frontier risks” – nine high-impact, low-probability events drawn from expert foresight exercises – including geomagnetic disruption, accidental wars and exploitation of brain-machine interfaces.

“The acceleration of the digital transformation promises large benefits, such as for example the creation of almost 100 million new jobs by 2025. At the same time however, digitalization may displace some 85 million jobs, and since 60% of adults still lack basic digital skills the risk is the deepening of existing inequalities,” said Peter Giger, Group Chief Risk Officer, Zurich Insurance Group. “The biggest long-term risk remains a failure to act on climate change. There is no vaccine against climate risks, so post-pandemic recovery plans must focus on growth aligning with sustainability agendas to build back better.”

“Economic and societal fallout from COVID-19 will profoundly impact the way organizations interact with clients and colleagues long after any vaccine rollout. As businesses transform their workplaces, new vulnerabilities are emerging. Rapid digitalization is exponentially increasing cyber exposures, supply chain disruption is radically altering business models, and a rise in serious health issues has accompanied employees’ shift to remote working,” said Carolina Klint, Risk Management Leader, Continental Europe, Marsh. “Every business will need to strengthen and constantly review their risk mitigation strategies if they are to improve their resilience to future shocks.”

“The pandemic in 2020 was a stress-test that shook the foundations of economies and societies worldwide. Rebuilding resilience to systemic shocks will require significant funding, international cooperation and greater social cohesion. Resilience will also hinge on the continued growth in connectivity worldwide, as we know that economies that digitized early performed relatively better in 2020,” said Lee Hyung-hee, President, Social Value Committee, SK Group. “If the continued deployment of 5G and AI is to emerge as an engine of growth, however, we must urgently bridge digital divides and address ethical risks.”

The Global Risks Report 2021 has been developed with the invaluable support of the World Economic Forum’s Global Risks Advisory Board. It also benefits from ongoing collaboration with its Strategic Partners Marsh McLennan, SK Group and Zurich Insurance Group and its academic advisers at the Oxford Martin School (University of Oxford), the National University of Singapore and the Wharton Risk Management and Decision Processes Center (University of Pennsylvania).

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Air travel down 60 per cent, as airline industry losses top $370 billion

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A new report from the UN’s air transportation agency confirms there was a “dramatic” fall in international air travel due to COVID-19, of around 60 per cent over the course of last year, to levels last seen in 2003.

The International Civil Aviation Organization (ICAO) said on Friday, that as seating capacity fell by around 50 per cent last year, that left just 1.8 billion passengers taking flights through 2020, compared with around 4.5 billion in 2019.

That adds up to a staggering financial loss to the industry of around $370 billion, “with airports and air navigation services providers losing a further 115 billion and 13 billion, respectively”, said ICAO in a press statement.

Grounded in March

As the coronavirus began its global spread, the air industry came to a virtual standstill by the end of March. Following widespread national lockdowns, by April the overall number of passengers had fallen 92 per cent from 2019 levels, an average of the 98 per cent drop-off seen in international traffic and 87 per cent fall in domestic air travel.

There was a moderate rebound during the summer travel period, but recovery was short-lived. “Sectoral recovery became more vulnerable and volatile again during the last four months of 2020, indicating an overall double-dip recession for the year”, ICAO said.

Disparity at home and abroad

The report notes “a persistent disparity between domestic and international air travel impacts resulting from the more stringent international measures in force.”

Domestic travel proved more resilient and was the main driver of any glimmer of recovery to the industry, particularly in China and Russia, ICAO notes, where domestic passenger numbers have already returned to the pre-pandemic levels.

Overall, there was a 50 per cent drop in domestic passenger traffic globally, while international traffic fell by 74 per cent, or around 1.4 billion passengers.

The plunge in traffic, has put the entire industry’s financial liability into question said ICAO, and threatens the viability of millions of associated jobs around the world.

Tourism in crisis

It has also severely impacted global tourism, given that more than 50 per cent of international travellers used to reach their destinations by plane.

ICAO said that the regional breakdown in losses showed a $120 billion loss year-on-year in the Asia-Pacific region, $100 billion in Europe, $88 billion in North America, followed by $26 billion, $22 billion and $14 billion in Latin America and the Caribbean, the Middle East, and Africa, respectively.

The agency described the near term outlook as one of “prolonged depressed demand, with downside risks to global air travel recovery predominating in the first quarter of 2021, and likely to be subject to further deterioration.”

It does not expect any improvement until the second quarter of 2021, athough this will still be subject to the effectiveness of pandemic management and vaccination roll out across the world.

Best-case scenario

In the most optimistic scenario, said ICAO, by June of 2021 passenger numbers will be expected to recover globally to 71 per cent of their 2019 levels (or 53 per cent for international and 84 per cent for domestic flights). A more pessimistic scenario foresees only a 49 per cent recovery (26 per cent for international and 66 per cent for domestic).

ICAO will continue to provide recommendations and support for the aviation sector to weather the crisis. Its new Guidance on Economic and Financial Measures summarizes a range of measures that can be explored by States and the industry to ease the crisis, and strengthen the industry to withstand future shocks better.

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