By Paul Hannon
The global economy will slow more sharply than previously expected this year as the sharp rises in interest rates implemented by leading central banks over the previous two years weaken investment spending, the United Nations said Thursday.
In the first of its twice-yearly reports on the global economic outlook, the UN said it expects world economic output to increase by 2.4% this year, a slowdown from the 2.7% expansion recorded in 2023. The new forecast is lower than the 2.5% growth projected by the UN in May, and the 3% average for the years leading up to the Covid-19 pandemic.
The UN said inflation rates are likely to ease further this year around the world, but that interest rates are set to stay high, increasing the cost of repaying debts for developing countries.
"Sluggish global growth is projected to slow further," said Antonio Guterres, the UN's secretary-general. "Investment will remain weak. The debt crisis will continue to spiral, as debt service obligations reach new heights."
Global economic growth was stronger than the UN and many other forecasters expected in 2023, largely due to the resilience of consumer spending in the U.S. in the face of rising borrowing costs. However, the UN expects U.S. growth to slow to 1.4% this year from 2.5% in 2023, a stronger outcome than the 1% expansion it projected in May. It also expects to see a slowdown in China, the world's second-largest economy.
By contrast, the UN expects to see a pickup in eurozone economic growth after a sharper than expected slowdown in 2023.
While many developing economies in Africa and elsewhere are also expected to see a pickup in growth this year, the UN said that will leave most well below the levels of activity that were anticipated before the Covid-19 pandemic struck. The UN's economists estimate that by 2023, the world's poorest countries had suffered lost growth equivalent to 30% of their pre-pandemic GDP, compared to just 10% for the world's richest economies.
The UN said it expects global inflation to slow further from the three-decade peak reached in 2022, to 3.9% from 5.7% in 2023. But it said that strong jobs markets in rich countries made it unlikely that the leading central banks would cut their key interest rates early in the year.
"Rising nominal wage growth has signalled the risk of second-round effects and more lasting inflationary pressures, making the central banks reluctant to end the tightening cycle and turn towards monetary easing," the UN said.
Write to Paul Hannon at paul.hannon@wsj.com
(END) Dow Jones Newswires
01-04-24 1244ET
