Worrisome risks lurk beneath solid global growth
By Elliott Harris, UN Chief Economist and Assistant Secretary-General for Economic Development
On the surface, the world economy remains on a steady trajectory moving into 2019. Headline figures suggest that – while global growth has likely peaked – activity around the world will continue to expand at a solid pace. Several developed economies are operating close to their full potential with unemployment rates at historical lows.
Yet, headlines do not tell the whole story. Beneath the surface, a much more worrisome picture of the world economy emerges. The newly-released World Economic Situation and Prospects 2019 illustrates how a combination of rising economic, social and environmental challenges hampers progress towards the United Nations Sustainable Development Goals. There are several risk factors that could disrupt activity and inflict significant damage on longer-term development prospects. Over the past year, trade policy disputes have escalated, and financial vulnerabilities have increased as global liquidity tightens, casting a shadow over the outlook for 2019 and beyond.
Should such a downturn materialize, prospects are grim. Global private and public debt is at a record high, well above the level seen in the run-up to the global financial crisis. Interest rates remain very low in most developed economies, while central bank balance sheets are still bloated. With limited monetary and fiscal space, policymakers around the globe will struggle to react effectively to an economic downturn. And, given waning support for multilateral approaches, concerted actions – like those implemented in response to the 2008/09 crisis – may prove difficult to arrange.
Even if global growth remains robust, its benefits do not reach the places they are needed most. Incomes will stagnate or grow only marginally in 2019 in parts of Africa, Western Asia, and Latin America and the Caribbean. Many commodity exporters are still grappling with the effects of the commodity price collapse of 2014-16. The challenges are most acute in Africa, where per capita growth has averaged only 0.3 per cent over the past five years. Given a rapidly growing population, the fight against poverty will require much faster economic growth and dramatic reductions in income inequality.
And, perhaps most importantly, the critical transition towards environmental sustainability is not happening fast enough. The nature of current growth is not compatible with holding the increase in the global average temperature to well below 2°C above pre-industrial levels. In fact, the impacts of climate change are becoming more widespread and severe. The frequency and intensity of extreme weather events is increasing.Floods, coastal storm surges, droughts and heat waves are damaging vital infrastructure and causing large-scale displacements. The human and economic costs of such disasters fall overwhelmingly on low-income countries.
Many of the challenges before us are global in nature and require collective and cooperative policy action. Withdrawal into nationalism and unilateral action will only pose further setbacks for the global community, and especially for those already in danger of being left behind. Instead, policymakers need to work together to address the weaknesses of the current system and strengthen the multilateral framework.