UN Expects Global Economic Growth Though Challenges Carry On

The United Nations has predicted a 3% annual global economic growth in the next two years although challenges may remain. The anticipated improvement in world fiscal activity is based on the marked progress in the financial performances of many regions. Nonetheless, the UN underscores the need for more secure policies that focus in strengthening the still unstable banking condition that could hinder further growth if unchecked.

Growth watch

The UN Economic and Social Commission for Asia and Pacific (ESCAP) headed by Executive Secretary Shamshad Akhtar consistently conduct growth watch on world economy. According to the recently launched report from “World Economic Situation and Prospects 2014” (WESP), economy will definitely grow in 2014 and 2015 by 3% and 3.3% respectively. This is significantly higher than the progress that took place in 2013 at only 2.1%. The UN Department of Economic and Social Affairs and the UN Conference on Trade and Development (UNCTAD) said there was a gradual increase in economic activity in 2013 with more improvements in the last quarter. This made the UN to make a bright forecast on global financial performances in 2014 and 2015. The reports were collated from the five UN regional commissions as direct resources.

Determining factors

Some of the determining factors that led the UN to make a forecast on upcoming economic advancement include the strengthening of the euro’s currency value. Meanwhile a stronger U.S. dollar is also seen along with expansions in China and India following two years of going astray. The U.S. in particular has exercised control and belt tightening measures even if the efforts resulted to political deadlock. Good news from the World Economic Situation and Prospects 2014 states that the prolonged economic downturn in euro-dependent countries has at last drawn to a close.

Still weak

Amid the promise of global economic redemption, financial experts believe that Western Europe is still weak. Despite being able to rise from recession, fiscal difficulties and lack of jobs are likely to continue and might even grow by 1.5% in 2014, which is parallel to the prediction for Japan in the same year. UN Executive Secretary General Shamshad Akhtar said the forecasts on fiscal conditions for the next two yeas are founded on the various risks and possible changes that could occur in the absence of reliable policies that will support and sustain the predicted fiscal growth.

QE Stimulus

Among the foreseen risks is the possible rough exit from the QE (Quantitative Easing) stimulus issued by the US Federal Reserve. Bond buying acts have accompanied the said stimulus since its launching in 2008, which is now the subject of discussion in the Capitol by the Federal Reserve’s policy committee. According to Global Economic Monitoring Unit Chief Pingfan Hong, if the QE stimulus takes an untimely exit, there will be financial disruption that could displace economic progress worldwide.

A sudden pullout can result to a detrimental surge and will affect the long-term interest rates in both first and third world countries. As a repercussion, there could be a sharp dip in the inflow of capital and increase in the risk premium especially in economies that are beginning to pick up. In contrast, if the QE is kept longer than necessary, it could be difficult to make an essential exit when the right time comes.

Photo Credit: Shamshad Akhtar, ESCAP Executive Secretary