Due to several "severe and mutually reinforcing shocks," world output growth is expected to slow down from 3.0 percent in 2022 to 1.95 percent in 2023, marking one of the lowest rates in recent decades, according to the UN World Economic Situation and Prospects 2023 report released on Wednesday.
Global economic slowdown cuts across developed and developing countries, with many facing recession risks. Throughout 2022, the world economy was hit by several severe shocks, ranging from the COVID-19 pandemic to the war in Ukraine, resulting in food and energy crises, surging inflation and debt tightening as well as a climate emergency.
As a result, the growth rate of world output is expected to decelerate by 1.9 percent in 2023 compared to an estimated 3.0 percent growth rate in 2022.
Global growth is expected to increase moderately to 2.7 percent in 2024 as some headwinds subside. This is subject to many factors, including hawkish monetary policies, the outcome and consequences of the conflict in Ukraine and the possibility of further disruptions in the supply chain.
Growth momentum has weakened in the U.S., the EU and other developed economies, adversely affecting the rest of the world. For example, after growing 1.8 percent in 2022, the U.S. gross domestic product (GDP) is projected to grow by only 0.4 percent in 2023.
As the war in Ukraine continues, the short-term economic outlook for Europe has deteriorated sharply. Despite easing COVID-19 restrictions and the release of pent-up demand, the EU economy is likely to grow by only 0.2 percent in 2023, down from 3.3 percent in 2022.
In developing countries, fiscal and debt vulnerabilities were exacerbated by tightening global financial conditions and a strong greenback. Over 85 percent of central banks worldwide tightened monetary policy and raised interest rates quickly starting in late 2021 to control inflationary pressures and avoid recession.
There is a silver lining, however. Despite reaching an all-time high of about nine percent in 2022, global inflation is projected to ease to 6.5 percent this year.
Multilateral frameworks are under testing
The WESP 2023 report explains that international cooperation is more important than ever to address multiple global crises and achieve the 2030 Sustainable Development Goals (SDGs).
"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," says the report.
As growth slows, inflation rises and debt vulnerabilities rise, the achievements in sustainable development deteriorate further, deepening the effects of current crises. The number of people facing critical food insecurity doubled from 2019 to 2022, reaching almost 350 million. Slow income growth and prolonged economic weakness would hinder poverty eradication and countries' ability to invest in SDGs.
The current crises are hitting the most vulnerable the hardest — often through no fault of their own. The global community needs to step up joint efforts to avert human suffering and support an inclusive and sustainable future for all.
Li Junhua, UN Under Secretary-General for Economic and Social Affairs
The report suggests that governments should avoid fiscal austerity, which slows growth and adversely affects the weakest segments of society, impedes progress in gender equality and stifles future development.
It proposes reallocating public spending so that jobs can be created and direct policy interventions can revitalize growth. Providing continued support through targeted and temporary subsidies, cash transfers and utility discounts is possible with a reduction in consumption taxes.
As the SDGs reach the midpoint, the world is at a critical juncture, the report says. Most estimates reveal that trillion dollars are needed annually for developing countries to meet the goals and address the climate crisis.
According to the report, more substantial international commitment is imperative to expand access to financial aid, restructure debt burdens across developing countries and scale up SDG financing.