The world economy expanded by just 2.2 per cent in 2016, the slowest rate of growth since the Great Recession of 2009, according to the United Nations World Economic Situation and Prospects (WESP) 2017 report. World gross product is projected to grow by 2.7 per cent in 2017 and 2.9 per cent in 2018, a slight downward revision from forecasts made last May.
Although a modest global recovery is projected for 2017-18, the world economy has not yet emerged from the period of slow growth, characterised by weak investment, dwindling trade and flagging productivity growth, states the report.
Launching the report at the UN Headquarters in New York, Lenni Montiel, assistant secretary-general for Economic Development, United Nations Department of Economic and Social Affairs, underscored the “need to redouble the efforts to bring the global economy back on a stronger and more inclusive growth path and create an international economic environment that is conducive to sustainable development.”
The moderate improvement expected for 2017-18 is more an indication of economic stabilisation than a signal of a robust and sustained revival of global demand. As commodity prices trend higher, commodity exporting economies are likely to see some recovery in growth.
The report projects that growth in the developed economies will slightly improve in 2017, but headwinds arising from weak investment and policy uncertainty continue to constrain economic activity.
Developing countries continue to be the main drivers of global growth, accounting for about 60 per cent of the world’s gross product growth in 2016-18. East and South Asia remain the world’s most dynamic regions, benefiting from robust domestic demand and supportive macroeconomic policies.
The report identifies prolonged weak investment as a major cause of the slowdown in global growth. Many economies have experienced a marked downturn in private and public investment in recent years, particularly in the oil and extractive industries. In commodity-exporting countries, governments have curtailed much needed public investment in infrastructure and social services, in response to sharp revenue losses. At the same time, labour productivity growth has slowed markedly in most developed economies and in many large developing and transition economies.
The report stresses the importance of investment in new capital as a driver of technological change and efficiency gains. In particular, it concludes that investment in key areas, such as research and development, education and infrastructure, can serve to promote social and environmental progress, while also supporting productivity growth.
The report, however, cautions that the global outlook faces significant uncertainties and risks. A high degree of uncertainty is identified in the international policy environment and elevated foreign currency-denominated debt levels as key downside risks that may derail the already modest global growth prospects.