• Senior UN economists warned that intersecting crises are likely to add further damage to the global economy, with growth set to slow from three per cent in 2022 to 1.9 per cent this year.
• This will be one of the lowest growth rates in recent decades, apart from during the 2007-08 financial crisis and the height of the COVID-19 pandemic.
• Several countries will see a mild recession before growth is forecast to pick up in the second half of this year and into 2024, according to the World Economic Situation and Prospects 2023.
• Global inflation, which reached a multi-decade high of about 9 per cent in 2022, is projected to ease but remain elevated at 6.5 per cent in 2023.
• The report warns that the findings also threaten the achievement of the 17 Sustainable Development Goals (SDGs).
• The report is produced by the United Nations Department of Economic and Social Affairs (UN DESA), in partnership with the United Nations Conference on Trade and Development (UNCTAD) and the five United Nations regional commissions: Economic Commission for Africa (UNECA), Economic Commission for Europe (UNECE), Economic Commission for Latin America and the Caribbean (UNECLAC), Economic and Social Commission for Asia and the Pacific (UNESCAP) and Economic and Social Commission for Western Asia (UNESCWA).
Multiple shocks to the world economy
• A series of severe and mutually reinforcing shocks struck the world economy in 2022. With the impacts of the COVID‑19 pandemic still reverberating worldwide, the war in Ukraine ignited a new crisis, disrupting food and energy markets, and worsening food insecurity and malnutrition in many developing countries.
• High inflation unleashed an erosion of real incomes and a global cost-of-living crisis that has pushed millions into poverty and economic hardship.
• At the same time, the climate crisis continued to impose a heavy toll, with heat waves, wildfires, floods and hurricanes inflicting massive economic damages and generating humanitarian crises in many countries.
• All these shocks will weigh heavily on the world economy in 2023.
• Persistently high inflation, which averaged about 9 per cent in 2022, has prompted aggressive monetary tightening in many developed and developing countries.
• Rapid interest rate hikes, particularly by the Federal Reserve in the United States of America, have had global spillover effects, triggering capital outflows and currency depreciations in developing countries, increasing balance of payment pressures and exacerbating debt sustainability risks.
• Financing conditions have tightened sharply amid high levels of private and public debt, pushing up debt-servicing costs, constraining fiscal space and increasing sovereign credit risks.
• Rising interest rates and diminishing purchasing power have weakened consumer confidence and investor sentiment, further clouding near-term growth prospects for the world economy.
• Global trade has softened due to tapering demand for consumer goods, the protracted war in Ukraine and continued supply chain challenges.
• Against this backdrop, world output growth is projected to decelerate from an estimated 3 per cent in 2022 to only 1.9 per cent in 2023, marking one of the lowest growth rates in recent decades.
• Global growth is forecast to moderately pick up to 2.7 per cent in 2024, if, as expected, some macroeconomic headwinds begin to subside next year.
• Inflationary pressures are projected to gradually abate amid weakening aggregate demand in the global economy.
• The near-term economic outlook remains highly uncertain, however, as myriad economic, financial, geopolitical and environmental risks persist.
• Slower growth, elevated inflation and mounting debt vulnerabilities threaten to further set back hard-won SDG achievements, deepening the already negative effects of the COVID‑19 pandemic. A prolonged period of economic weakness and slow income growth would undermine poverty eradication efforts by constraining national capacities to invest in health, education, physical and digital infrastructure, and energy transition.
A worsening outlook in most regions
• Amid high inflation and tighter monetary policy, the United States of America and the European Union (EU) face sharp growth slowdowns in 2023.
• After expanding by 5.7 per cent in 2021, growth of gross domestic product (GDP) in the United States fell to 1.8 per cent in 2022 and is forecast at only 0.4 per cent in 2023.
• The economic outlook for Europe is grim due to the fallout from the war in Ukraine. Many European countries are projected to experience a mild recession during the winter of 2022 to 2023, as high inflation reduces household purchasing power and increases production costs for firms, interest rate hikes tighten financial conditions, and sizeable fiscal deficits and elevated debt levels constrain governments’ ability to provide further fiscal support to the economy.
• In contrast, growth in China is expected to moderately improve in 2023. The Chinese economy is estimated to have grown by 3 per cent in 2022, marking a significant downward revision from earlier projections, due to recurring COVID‑19-related lockdowns in different cities and prolonged stress in the real estate market. With the government abandoning its zero-COVID‑19 policy in late 2022, and easing monetary and fiscal policies, the economy is projected to expand by 4.8 per cent in 2023.
• In Africa, slowing demand from China and the European Union, its main trading partners, and waning monetary and fiscal support are weighing on near-term growth prospects. Amid elevated levels of debt and rising borrowing costs, several governments are seeking bilateral and multilateral support to finance public investment.
• Growth in India is expected to remain strong at 5.8 per cent, albeit slightly lower than the estimated 6.4 per cent in 2022, as higher interest rates and a global slowdown weigh on investment and exports.
• Despite growing at a moderate pace, Japan’s economy is expected to be among the better performing developed economies in 2023.
• The least developed countries, many of which are highly vulnerable to external shocks, will face continuing challenges in 2023. As most of these countries are food and oil importers, disruptions in global food supplies and rising prices are intensifying food insecurity and adding to balance-of-payment pressures.
• The contraction of the economy of the Russian Federation and the significant loss of output in Ukraine are having spillover effects on the rest of the region. Nonetheless, the Russian economy shrank less than initially expected in 2022, with GDP declining by only about 3.5 per cent due to a massive current account surplus, the continued stability of the banking sector and the reversal of initially sharp monetary tightening.
Central banks are vigorously fighting inflation
• In 2022, central banks worldwide raised interest rates in quick succession to bring inflation under control and anchor inflation expectations. This shift towards tighter monetary policy was exceptionally broad-based.
• Over 85 per cent of monetary authorities worldwide hiked rates in the past year.
• As inflation is likely to have peaked in late 2022, central banks, especially in the developed countries, are expected to slow the pace of interest rate hikes in 2023, particularly if inflation approaches respective national target rates.
A slower job recovery
• Jobs continued to recover from the pandemic in 2022 but with significant differences across countries. In many developed economies, labour markets became exceptionally tight as evidenced by record-low unemployment and record-high employment and job vacancy rates.
• Sectors such as construction, information and communication, and food and accommodation continued to suffer from severe labour shortages. Most developing countries, however, have seen a slower job recovery with considerable employment slack. The average unemployment rate in developing countries in 2022 was still notably higher than before the pandemic.
• Disproportionate losses in women’s employment in 2020 have not been fully reversed. Recent improvements mainly stem from a recovery in informal jobs. With a deteriorating global outlook, employment prospects for 2023 and 2024 have weakened in a vast majority of countries.
Food and energy crisis
• The global food and energy crisis unleashed by the war in Ukraine is hitting many developing countries hard. In addition, severe droughts and floods have damaged crops, especially in parts of Africa and South Asia, pushing millions into poverty.
• Amid soaring food and fertilizer prices and supply disruptions, the number of people facing severe food insecurity more than doubled between 2019 and 2022.
• According to the World Food Programme (WFP 2022), the number of people, particularly women, facing severe food insecurity soared from 135 million in 53 countries before the pandemic to 345 million in 82 countries in 2022.
• Some relief has come from the Black Sea Grain Initiative brokered by the United Nations and Turkey. It has ensured the resumption of food exports from Ukraine to the rest of the world, with more than 15 million metric tonnes of grain and other foods transported between August and mid-December 2022.
• In addition, through a memorandum of understanding signed in July 2022, the Russian Federation and the Secretariat of the United Nations agreed to facilitate the unimpeded access to global markets for food and fertilizers, including materials required for producing fertilizers, originating from the Russian Federation.
• Nevertheless, uncertainty over the duration and intensity of the conflict, along with potential export restrictions in food exporting countries, mean that food supply challenges will likely persist in 2023.
Stronger international cooperation is imperative
• The pandemic, the global food and energy crises, climate risks and the looming debt crisis in many developing countries are testing the limits of existing multilateral frameworks.
• International cooperation has never been more important than now to face multiple global crises and bring the world back on track to achieve the SDGs.
• Since the start of the pandemic, the international community has offered financial support with a sharp increase in the provision of IMF emergency lending to developing countries, most recently, for example, through a new food shock window.
• In August 2021, a $650 billion IMF special drawing rights (SDRs) allocation – the largest in history – was approved to provide liquidity to the global financial system. However, only a small fraction – $21 billion – was allocated to low-income countries.
• While the SDRs remain an important source of liquidity support for countries facing balance-of-payment challenges, the interest rate on them rose sharply in 2022.
• The international community will need to cap interest and charge rates to ensure that the poorest and most vulnerable countries can access the facility to meet near-term financing needs.
• Stronger support from the international community is also needed to resolve debt distress, where exogenous shocks constrain countries’ abilities to meet their debt obligations.
• The Group of 20 (G20) Common Framework for Debt Treatments remains the main international debt relief mechanism available to the least developed countries and other low-income countries facing debt distress. The framework has, however, fallen short of expectations.
• There is broad consensus that the framework is not working, especially in providing pragmatic, swift, comprehensive and forward-looking solutions for all countries facing debt distress. Such solutions must include a standstill in debt-servicing payments, engagement of official creditors with the debtor and with private creditors, and a clearly defined restructuring process.
• Beyond these immediate measures, an international statutory mechanism for sovereign debt restructuring needs to be established. There is also scope to improve lending contracts, for example, through State-contingent debt instruments or enhanced collective action clauses.
• A number of entities have estimated the financing requirements for developing countries to reach the goals and address the climate crisis. Most predictions fall in a range amounting to several trillion dollars per year. Given already limited fiscal space in developing countries and growing needs for stimulating recovery and protecting the most vulnerable, these countries face significant challenges in making such investments.
• At the same time, favourable climate and SDG outcomes, initially realised through action in specific countries, can have significant positive spillover effects across the world. More robust international cooperation in mobilising the resources needed to secure such outcomes is in the interest of all countries, developed and developing.
The work of UN DESA
• The United Nations Department of Economic and Social Affairs (DESA) works closely with governments and stakeholders to help countries around the world meet their economic, social and environmental goals.
• As the Secretariat entity responsible for the development pillar of the United Nations, its work addresses a range of cross-cutting issues that affect peoples’ lives and livelihoods.
• From poverty reduction to governance to finance to the environment, DESA’s work is about human progress for all, especially the most vulnerable.
• DESA’s work is guided by the United Nations development agenda, which is rooted in the values of equality, solidarity, tolerance, respect for nature and mutual responsibility. Furthermore, with a focus on equitable participation by all people, the United Nations development agenda has unique, universal legitimacy.
• DESA’s work programme can be categorised into three areas: norm-setting, analysis, and capacity-building.
• DESA is tasked with supporting deliberations in two major UN charter bodies: the UN General Assembly and UN Economic and Social Council (ECOSOC), as well as ECOSOC’s subsidiary bodies.
• In this regard, DESA’s main priorities are promoting progress toward and strengthening accountability in achieving UN development goals. Furthermore, DESA is responsible for ensuring civil society engagement with the UN by way of the ECOSOC body.