World economy poised to grow moderately, but lower than pre-crisis levels

The global economy is expected to strengthen over the next two years, despite a downgrade of growth prospects for some developing economies and economies in transition, showed a UN report released here Wednesday. In the mid-year update of UN World Economic Situation and Prospects (WESP), global growth rate was revised down from the forecasts presented in the WESP 2014. Growth of world gross product (WGP) is now projected at 2.8 percent in 2014 and 3.2 percent in 2015, up from 2.2 percent in 2013, the report said. However, this pace of expansion is still lower compared to the growth level before the 2008 global financial crisis. "More than five years after the financial crisis, the world continues to struggle with getting the global economic engine back to running at full capacity," Hong Pingfan, chief of the Global Economic Monitoring Unit for the UN Department of Economic and Social Affairs (DESA), said at a press conference here. "Compared to pre-crisis trends, we have not sufficiently boosted output, trade and employment to their potential levels." The report warned that risks and uncertainties for the world economy include international spill-overs from ongoing adjustment in monetary policies by developing economies, vulnerabilities of emerging economies, remaining fragilities in the euro area, long- term unsustainable public finance for many developed countries and geopolitical tensions. GROWTH FOR EMERGING ECONOMIES REVISED DOWN The report's downward revision in growth projection mainly reflects deteriorating situations in several emerging economies due to different challenging economic and political conditions. With new projected growth rates of 4.7 percent and 5.1 percent for 2014 and 2015, respectively, developing countries, as a group, will keep contributing to a large proportion of global growth, the report said. However, this trajectory is 2 percentage points lower than pre-crisis levels for developing countries. The crisis in Ukraine and associated geopolitical tensions have largely caused an even more pronounced downward revision for economies in transition with negative 1.7 percent adjustments for the next two years compared to WESP projections in 2013. GROWTH IN DEVELOPED COUNTRIES TOO WEAK The report noted developed countries will continue to recover, adding that growth in developed economies is projected at 2.0 percent in 2014 and 2.4 percent in 2015. For the first time since 2011, the developed economies of North America, Europe and Asia are all aligned toward positive economic growth over the next two years, which should form a positive cycle to reinforce further recovery, said the report. However, five years after the financial crisis, projected growth rates remain too weak to recover the output and jobs lost in most of these economies, it said. Many developed countries have managed to curb their financial deficit, but their public debts still increase, Hong said. For example, the winter in North America this year is unusually long, impeding the economic growth in the region, he said. JOBS GROW AT SLOW PACE Globally, according to the International Labor Organization, employment grew by 1.4 percent in 2013, a similar pace as in 2012, but stubbornly slower than the rate of 1.7 percent in pre-crisis years. The global jobs gap -- comparing the number of jobs today with the number of jobs that would exist using the pre-crisis trend -- widened further to 62 million in 2013. In the outlook, global employment is expected to continue growing at a slow pace. "As the number of jobs lost in comparison with the pre-crisis employment trend continues to increase and structural unemployment remains a major problem, policymakers need to implement more supportive macroeconomic policies and active labor market policies, " said Matthias Kempf, the UN's team leader for the report. CAPITAL FLOWS As the United States Federal Reserve gradually scaled back its monthly asset purchases, or quantitative easing, emerging economies saw a marked reduction in capital inflows in 2013 and early 2014 and remained exposed to sudden change in financial market sentiment, the report said. Global financial markets have since calmed and capital flows to emerging economies have stabilized, it said. In the outlook, capital flows to emerging economies are projected to pick up slowly, in line with the expected recovery in global growth. However, significant uncertainties and downside risks remain, as investors continue to be extremely sensitive to the interaction between the U.S. Federal Reserve's tightening path and weaknesses in some emerging markets. WORLD TRADE World trade growth was flat in the first quarter of 2014, the report said. However, improvement is expected for the rest time of 2014 as import demand in major developed countries gradually increases. Real exports are forecast to grow by 4.1 percent in 2014, almost twice as fast as in 2013, but still below the pre- crisis trend of twice the global output growth. The report called for strengthening international policy coordination to support a robust recovery of output and jobs, cooperation in international financial reforms and sufficient development financing resources to the least developed countries. WESP includes updates to the economic outlooks for all regions of the world, as well as policy recommendations and information on global commodity prices, inflation and exchange rates. It is produced at the beginning of each year, and updated mid- year, by the DESA in cooperation with the United Nations Conference for Trade and Development and the five United Nations regional commissions.